The Return Trends At Hexing ElectricalLtd (SHSE:603556) Look Promising

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Hexing ElectricalLtd (SHSE:603556) looks quite promising in regards to its trends of return on capital.

What Is 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. To calculate this metric for Hexing ElectricalLtd, this is the formula:

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

0.14 = CN¥999m ÷ (CN¥9.2b - CN¥2.0b) (Based on the trailing twelve months to March 2024).

So, Hexing ElectricalLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Electronic industry.

Check out our latest analysis for Hexing ElectricalLtd

Above you can see how the current ROCE for Hexing ElectricalLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Hexing ElectricalLtd .

What Can We Tell From Hexing ElectricalLtd's ROCE Trend?

Investors would be pleased with what's happening at Hexing ElectricalLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. So we're very much inspired by what we're seeing at Hexing ElectricalLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Hexing ElectricalLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 303% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Hexing ElectricalLtd and understanding this should be part of your investment process.

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.

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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.