Why The 25% Return On Capital At Shanghai Hanbell Precise Machinery (SZSE:002158) Should Have Your Attention

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Shanghai Hanbell Precise Machinery (SZSE:002158) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Shanghai Hanbell Precise Machinery is:

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

0.25 = CN¥1.0b ÷ (CN¥6.3b - CN¥2.2b) (Based on the trailing twelve months to June 2024).

Thus, Shanghai Hanbell Precise Machinery has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 5.5% earned by companies in a similar industry.

View our latest analysis for Shanghai Hanbell Precise Machinery

In the above chart we have measured Shanghai Hanbell Precise Machinery's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai Hanbell Precise Machinery .

What Does the ROCE Trend For Shanghai Hanbell Precise Machinery Tell Us?

Shanghai Hanbell Precise Machinery is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 92% more capital is being employed now too. So we're very much inspired by what we're seeing at Shanghai Hanbell Precise Machinery thanks to its ability to profitably reinvest capital.

Our Take On Shanghai Hanbell Precise Machinery's ROCE

All in all, it's terrific to see that Shanghai Hanbell Precise Machinery is reaping the rewards from prior investments and is growing its capital base. And a remarkable 152% 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 Shanghai Hanbell Precise Machinery can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Shanghai Hanbell Precise Machinery you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.