Returns At Sound Group (NASDAQ:SOGP) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Sound Group (NASDAQ:SOGP) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Sound Group is:

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

0.062 = CN¥18m ÷ (CN¥591m - CN¥305m) (Based on the trailing twelve months to June 2025).

Thus, Sound Group has an ROCE of 6.2%. In absolute terms, that's a low return but it's around the Entertainment industry average of 7.2%.

See our latest analysis for Sound Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sound Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sound Group.

What Can We Tell From Sound Group's ROCE Trend?

We're delighted to see that Sound Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 6.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Sound Group is utilizing 56% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, Sound Group's current liabilities are still rather high at 52% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

Long story short, we're delighted to see that Sound Group's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 57% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Sound Group does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.