The Return Trends At Perennial International (HKG:725) Look Promising

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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Perennial International (HKG:725) looks quite promising in regards to its trends of return on capital.

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Understanding 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. The formula for this calculation on Perennial International is:

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

0.11 = HK$48m ÷ (HK$515m - HK$60m) (Based on the trailing twelve months to June 2025).

So, Perennial International has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 7.6% it's much better.

Check out our latest analysis for Perennial International

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Perennial International's past further, check out this free graph covering Perennial International's past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Perennial International is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 11% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 23%. Perennial International could be selling under-performing assets since the ROCE is improving.

What We Can Learn From Perennial International's ROCE

From what we've seen above, Perennial International has managed to increase it's returns on capital all the while reducing it's capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 50% return over the last five years. In light of that, we think it's worth looking further into this stock because if Perennial International can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 3 warning signs for Perennial International you'll probably want to know about.

While Perennial International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.