We Like These Underlying Return On Capital Trends At Chengdu Haoneng Technology (SHSE:603809)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Chengdu Haoneng Technology (SHSE:603809) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Chengdu Haoneng Technology:

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

0.13 = CN¥489m ÷ (CN¥5.6b - CN¥1.8b) (Based on the trailing twelve months to September 2024).

Thus, Chengdu Haoneng Technology has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Auto Components industry.

Check out our latest analysis for Chengdu Haoneng Technology

Above you can see how the current ROCE for Chengdu Haoneng Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Chengdu Haoneng Technology for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Chengdu Haoneng Technology. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 109% more capital is being employed now too. So we're very much inspired by what we're seeing at Chengdu Haoneng Technology thanks to its ability to profitably reinvest capital.

Our Take On Chengdu Haoneng Technology's ROCE

All in all, it's terrific to see that Chengdu Haoneng Technology is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 254% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 3 warning signs with Chengdu Haoneng Technology and understanding these should be part of your investment process.

While Chengdu Haoneng Technology 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.