HMT (Xiamen) New Technical Materials' (SHSE:603306) Returns On Capital Not Reflecting Well On The Business

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at HMT (Xiamen) New Technical Materials (SHSE:603306) and its ROCE trend, we weren't exactly thrilled.

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 HMT (Xiamen) New Technical Materials is:

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

0.069 = CN¥322m ÷ (CN¥5.0b - CN¥344m) (Based on the trailing twelve months to June 2024).

So, HMT (Xiamen) New Technical Materials has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Luxury industry average of 6.1%.

Check out our latest analysis for HMT (Xiamen) New Technical Materials

In the above chart we have measured HMT (Xiamen) New Technical Materials' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for HMT (Xiamen) New Technical Materials .

What Does the ROCE Trend For HMT (Xiamen) New Technical Materials Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 9.0% five years ago, while the business's capital employed increased by 101%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with HMT (Xiamen) New Technical Materials' earnings and if they change as a result from the capital raise.

What We Can Learn From HMT (Xiamen) New Technical Materials' ROCE

While returns have fallen for HMT (Xiamen) New Technical Materials in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 55% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a separate note, we've found 2 warning signs for HMT (Xiamen) New Technical Materials you'll probably want to 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.