Shanghai Huace Navigation Technology (SZSE:300627) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at Shanghai Huace Navigation Technology (SZSE:300627) so let's look a bit deeper.

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 Shanghai Huace Navigation Technology is:

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

0.17 = CN¥598m ÷ (CN¥4.6b - CN¥1.1b) (Based on the trailing twelve months to December 2024).

So, Shanghai Huace Navigation Technology has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 4.0% generated by the Communications industry.

Check out our latest analysis for Shanghai Huace Navigation Technology

In the above chart we have measured Shanghai Huace Navigation 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 Shanghai Huace Navigation Technology .

So How Is Shanghai Huace Navigation Technology's ROCE Trending?

The trends we've noticed at Shanghai Huace Navigation Technology are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 255%. So we're very much inspired by what we're seeing at Shanghai Huace Navigation Technology thanks to its ability to profitably reinvest capital.

The Bottom Line On Shanghai Huace Navigation Technology's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Shanghai Huace Navigation Technology has. Since the stock has returned a staggering 266% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Shanghai Huace Navigation Technology looks impressive, no company is worth an infinite price. The intrinsic value infographic for 300627 helps visualize whether it is currently trading for a fair price.

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.