Returns At Sichuan Chuanhuan TechnologyLtd (SZSE:300547) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at Sichuan Chuanhuan TechnologyLtd (SZSE:300547) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 Sichuan Chuanhuan TechnologyLtd is:

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

0.17 = CN¥207m ÷ (CN¥1.4b - CN¥262m) (Based on the trailing twelve months to September 2024).

Therefore, Sichuan Chuanhuan TechnologyLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Auto Components industry.

See our latest analysis for Sichuan Chuanhuan TechnologyLtd

Above you can see how the current ROCE for Sichuan Chuanhuan TechnologyLtd 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 Sichuan Chuanhuan TechnologyLtd for free.

The Trend Of ROCE

We like the trends that we're seeing from Sichuan Chuanhuan TechnologyLtd. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 46%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Sichuan Chuanhuan TechnologyLtd's ROCE

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 Sichuan Chuanhuan TechnologyLtd has. And a remarkable 389% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Sichuan Chuanhuan TechnologyLtd can keep these trends up, it could have a bright future ahead.

Sichuan Chuanhuan TechnologyLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

While Sichuan Chuanhuan TechnologyLtd 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.