Hefei Chipmore TechnologyLtd (SHSE:688352) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, Hefei Chipmore TechnologyLtd (SHSE:688352) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hefei Chipmore TechnologyLtd is:

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

0.056 = CN¥349m ÷ (CN¥7.1b - CN¥852m) (Based on the trailing twelve months to September 2024).

Therefore, Hefei Chipmore TechnologyLtd has an ROCE of 5.6%. On its own, that's a low figure but it's around the 4.8% average generated by the Semiconductor industry.

View our latest analysis for Hefei Chipmore TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hefei Chipmore TechnologyLtd's ROCE against it's prior returns. If you'd like to look at how Hefei Chipmore TechnologyLtd has performed in the past in other metrics, you can view this free graph of Hefei Chipmore TechnologyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last four years, returns on capital employed have risen substantially to 5.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 88%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Hefei Chipmore TechnologyLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hefei Chipmore TechnologyLtd has. Considering the stock has delivered 2.9% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching Hefei Chipmore TechnologyLtd, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Hefei Chipmore TechnologyLtd 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.