Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Full Truck Alliance (NYSE:YMM) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Full Truck Alliance, this is the formula:

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

0.04 = CN¥1.4b ÷ (CN¥40b - CN¥3.3b) (Based on the trailing twelve months to June 2024).

Therefore, Full Truck Alliance has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Transportation industry average of 6.6%.

See our latest analysis for Full Truck Alliance

In the above chart we have measured Full Truck Alliance's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Full Truck Alliance .

How Are Returns Trending?

We're delighted to see that Full Truck Alliance is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 4.0% on its capital. Not only that, but the company is utilizing 153% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Full Truck Alliance's ROCE

Long story short, we're delighted to see that Full Truck Alliance's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 40% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Full Truck Alliance, we've discovered 1 warning sign that you should be aware of.

While Full Truck Alliance 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.