Easy Click Worldwide Network Technology (SZSE:301171) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Easy Click Worldwide Network Technology (SZSE:301171), it didn't seem to tick all of these boxes.

What Is 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)

0.045 = CN¥158m ÷ (CN¥4.7b - CN¥1.2b) (Based on the trailing twelve months to September 2023).

So, Easy Click Worldwide Network Technology has an ROCE of 4.5%. Even though it's in line with the industry average of 4.8%, it's still a low return by itself.

View 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 .

So How Is Easy Click Worldwide Network Technology's ROCE Trending?

On the surface, the trend of ROCE at Easy Click Worldwide Network Technology doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.5% from 23% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. 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.

The Bottom Line On Easy Click Worldwide Network Technology's ROCE

In summary, we're somewhat concerned by Easy Click Worldwide Network Technology's diminishing returns on increasing amounts of capital. It should come as no surprise then that the stock has fallen 46% over the last year, 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'd like to know about the risks facing Easy Click Worldwide Network Technology, we've discovered 1 warning sign that you should be aware of.

While Easy Click Worldwide Network Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

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.