Returns On Capital Signal Tricky Times Ahead For Hangzhou Onechance Tech Crop (SZSE:300792)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Hangzhou Onechance Tech Crop (SZSE:300792), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Hangzhou Onechance Tech Crop:

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

0.022 = CN¥65m ÷ (CN¥3.1b - CN¥169m) (Based on the trailing twelve months to September 2024).

Therefore, Hangzhou Onechance Tech Crop has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Media industry average of 5.2%.

Check out our latest analysis for Hangzhou Onechance Tech Crop

Above you can see how the current ROCE for Hangzhou Onechance Tech Crop compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Hangzhou Onechance Tech Crop .

So How Is Hangzhou Onechance Tech Crop's ROCE Trending?

In terms of Hangzhou Onechance Tech Crop's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.2% from 20% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

From the above analysis, we find it rather worrisome that returns on capital and sales for Hangzhou Onechance Tech Crop have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 67% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Hangzhou Onechance Tech Crop, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.