Jiangsu Hanvo Safety Product (SZSE:300952) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Jiangsu Hanvo Safety Product (SZSE:300952), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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 Jiangsu Hanvo Safety Product is:

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

0.047 = CN¥94m ÷ (CN¥2.6b - CN¥611m) (Based on the trailing twelve months to September 2024).

Therefore, Jiangsu Hanvo Safety Product has an ROCE of 4.7%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.

View our latest analysis for Jiangsu Hanvo Safety Product

In the above chart we have measured Jiangsu Hanvo Safety Product'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 Jiangsu Hanvo Safety Product for free.

So How Is Jiangsu Hanvo Safety Product's ROCE Trending?

We weren't thrilled with the trend because Jiangsu Hanvo Safety Product's ROCE has reduced by 81% over the last five years, while the business employed 419% more capital. Usually this isn't ideal, but given Jiangsu Hanvo Safety Product conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Jiangsu Hanvo Safety Product probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Bottom Line On Jiangsu Hanvo Safety Product's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu Hanvo Safety Product. In light of this, the stock has only gained 20% over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Jiangsu Hanvo Safety Product does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

While Jiangsu Hanvo Safety Product 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.