If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Full Truck Alliance (NYSE:YMM) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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%.

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're interested, you can view the analysts predictions in 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. And unsurprisingly, like most companies trying to break into the black, Full Truck Alliance is utilizing 153% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line 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 36% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Full Truck Alliance you'll probably want to know about.

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.

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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.