Be Wary Of Easy Click Worldwide Network Technology (SZSE:301171) And Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Easy Click Worldwide Network Technology (SZSE:301171) 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 that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Easy Click Worldwide Network Technology:

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

0.072 = CN¥255m ÷ (CN¥5.4b - CN¥1.8b) (Based on the trailing twelve months to March 2024).

Thus, Easy Click Worldwide Network Technology has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.0%.

Check out our latest analysis for Easy Click Worldwide Network Technology

Above you can see how the current ROCE for Easy Click Worldwide Network Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Easy Click Worldwide Network Technology .

How Are Returns Trending?

On the surface, the trend of ROCE at Easy Click Worldwide Network Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 19% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Easy Click Worldwide Network Technology's ROCE

Bringing it all together, while we're somewhat encouraged by Easy Click Worldwide Network Technology's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 37% in the last year. Therefore based on the analysis done in this article, we don't think Easy Click Worldwide Network Technology has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with Easy Click Worldwide Network Technology and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com