Returns Are Gaining Momentum At Hangzhou Sunrise TechnologyLtd (SZSE:300360)

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. 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 on that note, Hangzhou Sunrise TechnologyLtd (SZSE:300360) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Hangzhou Sunrise TechnologyLtd is:

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

0.16 = CN¥593m ÷ (CN¥4.5b - CN¥654m) (Based on the trailing twelve months to March 2024).

Thus, Hangzhou Sunrise TechnologyLtd has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.4% it's much better.

See our latest analysis for Hangzhou Sunrise TechnologyLtd

In the above chart we have measured Hangzhou Sunrise TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Hangzhou Sunrise TechnologyLtd .

The Trend Of ROCE

We like the trends that we're seeing from Hangzhou Sunrise TechnologyLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 73% more capital is being employed now too. 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

To sum it up, Hangzhou Sunrise TechnologyLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 173% 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.

On a separate note, we've found 1 warning sign for Hangzhou Sunrise TechnologyLtd you'll probably want to know about.

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.