The Returns On Capital At Hangzhou Anysoft Information Technology (SZSE:300571) Don't Inspire Confidence

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Hangzhou Anysoft Information Technology (SZSE:300571), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Hangzhou Anysoft Information Technology is:

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

0.014 = CN¥27m ÷ (CN¥3.9b - CN¥1.9b) (Based on the trailing twelve months to September 2024).

So, Hangzhou Anysoft Information Technology has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Communications industry average of 4.9%.

See our latest analysis for Hangzhou Anysoft Information Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hangzhou Anysoft Information Technology's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Hangzhou Anysoft Information Technology.

So How Is Hangzhou Anysoft Information Technology's ROCE Trending?

When we looked at the ROCE trend at Hangzhou Anysoft Information Technology, we didn't gain much confidence. Around five years ago the returns on capital were 38%, but since then they've fallen to 1.4%. However it looks like Hangzhou Anysoft Information 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a separate but related note, it's important to know that Hangzhou Anysoft Information Technology has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To conclude, we've found that Hangzhou Anysoft Information Technology is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 49% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 3 warning signs for Hangzhou Anysoft Information Technology (2 are a bit concerning) you should be aware of.

While Hangzhou Anysoft 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.