Returns At Willfar Information Technology (SHSE:688100) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Willfar Information Technology (SHSE:688100) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Willfar Information Technology:

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

0.18 = CN¥542m ÷ (CN¥4.4b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

So, Willfar Information Technology has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Electronic industry.

View our latest analysis for Willfar Information Technology

In the above chart we have measured Willfar Information Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Willfar Information Technology .

How Are Returns Trending?

We like the trends that we're seeing from Willfar Information Technology. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 111%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Willfar Information Technology's ROCE

All in all, it's terrific to see that Willfar Information Technology is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Willfar Information Technology that you might find interesting.

While Willfar Information 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.