Capital returns show encouraging signs in Kanzhun (NASDAQ:BZ)

If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. A common approach is to try to find a company with Return on capital employed (ROCE) which is increasing, in line with growth amount of capital employed. Basically, this means that a company has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Speaking of which, we’ve noticed big changes in by Kanzhun (NASDAQ:BZ) returns on capital, so let’s take a look.

Understanding return on capital employed (ROCE)

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for Kanzhun:

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

0.059 = 647 m ¥ CN ÷ (14 b ¥ – 2.8 b ¥ CN) (Based on the last twelve months to March 2022).

Therefore, Kanzhun has a ROCE of 5.9%. In absolute terms, that’s a poor return, but it’s far better than the interactive media and services industry average of 4.5%.

NasdaqGS:BZ Return on Capital Employed August 14, 2022

Above, you can see how Kanzhun’s current ROCE compares to its past returns on capital, but you can’t say anything about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

So, what is Kanzhun’s ROCE trend?

Kanzhun recently achieved profitability, so his earlier investments appear to be paying off. About two years ago, the company was generating losses, but things have reversed as it now earns 5.9% on its capital. On top of that, Kanzhun employs 633% more capital than before, which is expected from a company trying to become profitable. This can tell us that the business has plenty of reinvestment opportunities that can generate higher returns.

Along the same lines, the company’s ratio of current liabilities to total assets has decreased to 20%, essentially reducing its funding from short-term creditors or vendors. This tells us that Kanzhun has increased its returns without depending on the increase in its current liabilities, which we are very pleased with.

Our view on Kanzhun’s ROCE

Long story short, we are glad to see that Kanzhun’s reinvestment activities have paid off and the company is now profitable. Given that the stock is down 41% in the past year, it could be a good investment if valuation and other metrics are also attractive. That said, research into the company’s current valuation metrics and future prospects seems appropriate.

If you want to further research Kanzhun, you may be interested to know more about the 2 warning signs that our analysis found.

If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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