Hangzhou Gisway Information TechnologyLtd (SZSE:301390) Might Be Having Difficulty Using Its Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. However, after investigating Hangzhou Gisway Information TechnologyLtd (SZSE:301390), we don't think it's current trends fit the mold of a multi-bagger.

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 Hangzhou Gisway Information TechnologyLtd is:

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

0.054 = CN¥52m ÷ (CN¥1.4b - CN¥453m) (Based on the trailing twelve months to September 2024).

Thus, Hangzhou Gisway Information TechnologyLtd has an ROCE of 5.4%. On its own, that's a low figure but it's around the 6.1% average generated by the Construction industry.

View our latest analysis for Hangzhou Gisway Information TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hangzhou Gisway Information TechnologyLtd's ROCE against it's prior returns. If you'd like to look at how Hangzhou Gisway Information TechnologyLtd has performed in the past in other metrics, you can view this free graph of Hangzhou Gisway Information TechnologyLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Hangzhou Gisway Information TechnologyLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 21% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Hangzhou Gisway Information TechnologyLtd's ROCE

While returns have fallen for Hangzhou Gisway Information TechnologyLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 30% over the last year, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you'd like to know about the risks facing Hangzhou Gisway Information TechnologyLtd, we've discovered 3 warning signs that you should be aware of.

While Hangzhou Gisway Information 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.