The Return Trends At Hangzhou Sunrise TechnologyLtd (SZSE:300360) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at Hangzhou Sunrise TechnologyLtd (SZSE:300360) so let's look a bit deeper.

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 Hangzhou Sunrise TechnologyLtd:

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

0.18 = CN¥733m ÷ (CN¥4.8b - CN¥768m) (Based on the trailing twelve months to September 2024).

Therefore, Hangzhou Sunrise TechnologyLtd has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.5% it's much better.

See our latest analysis for Hangzhou Sunrise TechnologyLtd

Above you can see how the current ROCE for Hangzhou Sunrise TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Hangzhou Sunrise TechnologyLtd .

What Does the ROCE Trend For Hangzhou Sunrise TechnologyLtd Tell Us?

Investors would be pleased with what's happening at Hangzhou Sunrise TechnologyLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 86%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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 solid 90% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Hangzhou Sunrise TechnologyLtd can keep these trends up, it could have a bright future ahead.

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

While Hangzhou Sunrise TechnologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.