Hangzhou Toka InkLtd (SHSE:688571) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Hangzhou Toka InkLtd (SHSE:688571) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Hangzhou Toka InkLtd is:

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

0.096 = CN¥140m ÷ (CN¥1.9b - CN¥431m) (Based on the trailing twelve months to December 2023).

So, Hangzhou Toka InkLtd has an ROCE of 9.6%. On its own that's a low return, but compared to the average of 5.9% generated by the Chemicals industry, it's much better.

View our latest analysis for Hangzhou Toka InkLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hangzhou Toka InkLtd's ROCE against it's prior returns. If you're interested in investigating Hangzhou Toka InkLtd's past further, check out this free graph covering Hangzhou Toka InkLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Hangzhou Toka InkLtd. The company has employed 81% more capital in the last five years, and the returns on that capital have remained stable at 9.6%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Hangzhou Toka InkLtd's ROCE

In summary, Hangzhou Toka InkLtd has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 24% in the last three years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Hangzhou Toka InkLtd does have some risks though, and we've spotted 1 warning sign for Hangzhou Toka InkLtd that you might be interested in.

While Hangzhou Toka InkLtd 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.