Returns On Capital Are Showing Encouraging Signs At Hunan Copote Science TechnologyLtd (SHSE:600476)

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. So on that note, Hunan Copote Science TechnologyLtd (SHSE:600476) looks quite promising in regards to its trends of return on capital.

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

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 Hunan Copote Science TechnologyLtd is:

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

0.082 = CN¥28m ÷ (CN¥1.1b - CN¥806m) (Based on the trailing twelve months to September 2024).

Thus, Hunan Copote Science TechnologyLtd has an ROCE of 8.2%. On its own that's a low return, but compared to the average of 3.8% generated by the IT industry, it's much better.

See our latest analysis for Hunan Copote Science TechnologyLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Hunan Copote Science TechnologyLtd has performed in the past in other metrics, you can view this free graph of Hunan Copote Science TechnologyLtd's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Hunan Copote Science TechnologyLtd has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 8.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Hunan Copote Science TechnologyLtd is utilizing 47% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 71% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

Overall, Hunan Copote Science TechnologyLtd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has only returned 9.8% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Hunan Copote Science TechnologyLtd does have some risks though, and we've spotted 2 warning signs for Hunan Copote Science TechnologyLtd that you might be interested in.

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.