Slowing Rates Of Return At Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology (SHSE:603300) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Although, when we looked at Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology (SHSE:603300), it didn't seem to tick all of these boxes.

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. To calculate this metric for Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology, this is the formula:

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

0.092 = CN¥1.3b ÷ (CN¥22b - CN¥7.2b) (Based on the trailing twelve months to September 2024).

So, Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology has an ROCE of 9.2%. In absolute terms, that's a low return, but it's much better than the Trade Distributors industry average of 5.0%.

See our latest analysis for Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology

In the above chart we have measured Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology'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 Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology for free.

So How Is Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology's ROCE Trending?

In terms of Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.2% for the last five years, and the capital employed within the business has risen 189% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology's ROCE

In conclusion, Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 169% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Zhejiang Haikong Nanke Huatie Digital Intelligence and Technology (of which 1 is a bit unpleasant!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.