Yahoo Finance Be Wary Of MINISO Group Holding (NYSE:MNSO) And Its Returns On Capital
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at MINISO Group Holding (NYSE:MNSO) and its ROCE trend, we weren't exactly thrilled.
What is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for MINISO Group Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = CN¥877m ÷ (CN¥11b - CN¥3.8b) (Based on the trailing twelve months to December 2021).
Therefore, MINISO Group Holding has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.
View our latest analysis for MINISO Group Holding
Above you can see how the current ROCE for MINISO Group Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MINISO Group Holding.
So How Is MINISO Group Holding's ROCE Trending?
In terms of MINISO Group Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 48% over the last two years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
On a related note, MINISO Group Holding has decreased its current liabilities to 35% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
The Key Takeaway
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MINISO Group Holding. And there could be an opportunity here if other metrics look good too, because the stock has declined 67% in the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
Like most companies, MINISO Group Holding does come with some risks, and we've found 2 warning signs that you should be aware of.
While MINISO Group Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
