Investors Will Want Tencent Music Entertainment Group’s (NYSE:TME) Growth In ROCE To Persist

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. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So on that note, Tencent Music Entertainment Group (NYSE:TME) looks quite promising in regards to its trends of return on capital.

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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 Tencent Music Entertainment Group, this is the formula:

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

0.12 = CN¥11b ÷ (CN¥108b – CN¥16b) (Based on the trailing twelve months to June 2025).

Therefore, Tencent Music Entertainment Group has an ROCE of 12%. On its own, that’s a standard return, however it’s much better than the 8.1% generated by the Entertainment industry.

Check out our latest analysis for Tencent Music Entertainment Group

In the above chart we have measured Tencent Music Entertainment Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Tencent Music Entertainment Group for free.

The trends we’ve noticed at Tencent Music Entertainment Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The amount of capital employed has increased too, by 83%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that’s what Tencent Music Entertainment Group has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 64% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we’re getting for the current share price. That’s where you can check out our FREE intrinsic value estimation for TME that compares the share price and estimated value.

While Tencent Music Entertainment Group isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.