Hangzhou Hikvision Digital Technology (SZSE:002415) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Hangzhou Hikvision Digital Technology (SZSE:002415), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Hangzhou Hikvision Digital Technology is:

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

0.16 = CN¥15b ÷ (CN¥132b - CN¥38b) (Based on the trailing twelve months to March 2024).

So, Hangzhou Hikvision Digital Technology has an ROCE of 16%. 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 Hangzhou Hikvision Digital Technology

Above you can see how the current ROCE for Hangzhou Hikvision Digital 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 Hangzhou Hikvision Digital Technology .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Hangzhou Hikvision Digital Technology, we didn't gain much confidence. Around five years ago the returns on capital were 26%, but since then they've fallen to 16%. However it looks like Hangzhou Hikvision Digital Technology might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Hangzhou Hikvision Digital Technology is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 13% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Hangzhou Hikvision Digital Technology does have some risks though, and we've spotted 1 warning sign for Hangzhou Hikvision Digital Technology that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com