Hangzhou Hirisun Technology (SZSE:300277) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Hangzhou Hirisun Technology's (SZSE:300277) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Hangzhou Hirisun Technology is:

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

0.009 = CN¥4.5m ÷ (CN¥707m - CN¥203m) (Based on the trailing twelve months to September 2023).

Therefore, Hangzhou Hirisun Technology has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Software industry average of 2.7%.

View our latest analysis for Hangzhou Hirisun Technology

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're interested in investigating Hangzhou Hirisun Technology's past further, check out this free graph covering Hangzhou Hirisun Technology's past earnings, revenue and cash flow.

So How Is Hangzhou Hirisun Technology's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 20% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Hangzhou Hirisun Technology's ROCE

To bring it all together, Hangzhou Hirisun Technology has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 12% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 2 warning signs with Hangzhou Hirisun Technology (at least 1 which is significant) , and understanding these would certainly be useful.

While Hangzhou Hirisun 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.

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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.