There Are Reasons To Feel Uneasy About Beijing InHand Networks Technology's (SHSE:688080) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Beijing InHand Networks Technology (SHSE:688080) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 Beijing InHand Networks Technology, this is the formula:

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

0.10 = CN¥100m ÷ (CN¥1.1b - CN¥166m) (Based on the trailing twelve months to June 2024).

Thus, Beijing InHand Networks Technology has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 4.9% it's much better.

Check out our latest analysis for Beijing InHand Networks Technology

Above you can see how the current ROCE for Beijing InHand Networks Technology 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 Beijing InHand Networks Technology .

So How Is Beijing InHand Networks Technology's ROCE Trending?

When we looked at the ROCE trend at Beijing InHand Networks Technology, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 10% from 19% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Beijing InHand Networks Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Beijing InHand Networks Technology. In light of this, the stock has only gained 3.1% over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you'd like to know about the risks facing Beijing InHand Networks Technology, we've discovered 1 warning sign that you should be aware of.

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.