Qi An Xin Technology Group (SHSE:688561) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Speaking of which, we noticed some great changes in Qi An Xin Technology Group's (SHSE:688561) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Qi An Xin Technology Group, this is the formula:

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

0.0026 = CN¥25m ÷ (CN¥14b - CN¥4.8b) (Based on the trailing twelve months to December 2023).

Thus, Qi An Xin Technology Group has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Software industry average of 2.7%.

View our latest analysis for Qi An Xin Technology Group

Above you can see how the current ROCE for Qi An Xin Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Qi An Xin Technology Group for free.

What Can We Tell From Qi An Xin Technology Group's ROCE Trend?

Qi An Xin Technology Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.3% which is a sight for sore eyes. Not only that, but the company is utilizing 131% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

In summary, it's great to see that Qi An Xin Technology Group has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 62% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 688561 that compares the share price and estimated value.

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.

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.