Full Truck Alliance (NYSE:YMM) is looking to continue increasing its returns on capital

If we want to find a stock that can double over the long term, what fundamental trends should we look for? One common approach is to try to find company with her yields On the capital employed (ROCE) which increases, in conjunction with growth amount of capital used. This shows us that it is a compounding machine, able to continually reinvest its profits into the business and generate higher returns. Speaking of which, we’ve noticed some big changes in… Complete Truck Alliance (NYSE:YMM) returns on capital, so let’s take a look.

Return on Capital Employed (ROCE): What is it?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), compared to the capital employed by the company. The formula for this calculation at Full Truck Alliance is:

Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.018 = CNY 635 million ÷ (CNY 38 billion – CNY 2.9 billion) (Based on the trailing twelve months to June 2023).

thus, Full Truck Alliance has a return on sales (ROCE) rate of 1.8%. Ultimately, this is a low return and is below the transportation industry average performance of 9.1%.

View our latest analysis for Full Truck Alliance

You can see above how Full Truck Alliance’s current ROCE compares to its prior returns on equity, but there’s only so much you can tell from the past. If you want to know what analysts are forecasting in the future, you should check out our website free Complete Truck Alliance Report.

How are returns trending?

The fact that Full Truck Alliance is now generating some pre-tax profits from its previous investments is very encouraging. Shareholders will no doubt be happy with this because the company was making losses three years ago but is now generating 1.8% of its capital. Additionally, Full Truck Alliance uses 148% more capital than previously expected from a company trying to achieve profitability. This could indicate that there are plenty of opportunities to invest capital internally and at higher rates than ever before, both of which are common traits of multipackers.

The story continues

Bottom line

In short, we are pleased to see that Full Truck Alliance’s reinvestment activities have paid off and that the company is now profitable. Investors may not like the favorable fundamental trends so far because over the past year the stock has returned only 4.5% to shareholders. So exploring more about this stock could reveal a good opportunity, if valuation and other metrics stack up.

Before jumping to any conclusions, we need to know what value we are getting against the current stock price. This is where you can check our website Free intrinsic value estimation Which compares the stock price and estimated value.

If you want to look for strong companies with great profits, check this out free List of companies with good balance sheets and impressive returns on equity.

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This article written by Simply Wall St is general in nature. We provide comments based on historical data and analyst forecasts only using 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 into account your objectives or financial situation. We aim to offer you focused, long-term analysis driven by fundamental data. Note that our analysis may not take into account a company’s most recent price-sensitive announcements or qualitative materials. Simply put, Wall St has no position in any of the stocks mentioned.