Stock Analysis

Returns On Capital Signal Tricky Times Ahead For Zhejiang Whyis TechnologyLtd (SZSE:301218)

SZSE:301218
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. In light of that, when we looked at Zhejiang Whyis TechnologyLtd (SZSE:301218) and its ROCE trend, we weren't exactly thrilled.

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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. To calculate this metric for Zhejiang Whyis TechnologyLtd, this is the formula:

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

0.011 = CN¥12m ÷ (CN¥1.5b - CN¥465m) (Based on the trailing twelve months to September 2024).

So, Zhejiang Whyis TechnologyLtd has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the IT industry average of 3.7%.

View our latest analysis for Zhejiang Whyis TechnologyLtd

roce
SZSE:301218 Return on Capital Employed March 26th 2025

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

The Trend Of ROCE

When we looked at the ROCE trend at Zhejiang Whyis TechnologyLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.1% from 21% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Zhejiang Whyis TechnologyLtd has decreased its current liabilities to 31% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line

While returns have fallen for Zhejiang Whyis TechnologyLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 32% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 3 warning signs with Zhejiang Whyis TechnologyLtd (at least 1 which is concerning) , and understanding these would certainly be useful.

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.

Valuation is complex, but we're here to simplify it.

Discover if Zhejiang Whyis TechnologyLtd might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.