Here's What's Concerning About Hangzhou Seck Intelligent Technology's (SZSE:300897) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Hangzhou Seck Intelligent Technology (SZSE:300897) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Hangzhou Seck Intelligent Technology, this is the formula:

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

0.098 = CN¥98m ÷ (CN¥1.3b - CN¥255m) (Based on the trailing twelve months to September 2024).

So, Hangzhou Seck Intelligent Technology has an ROCE of 9.8%. In absolute terms, that's a low return, but it's much better than the Electronic industry average of 5.5%.

View our latest analysis for Hangzhou Seck Intelligent Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Hangzhou Seck Intelligent Technology.

What Does the ROCE Trend For Hangzhou Seck Intelligent Technology Tell Us?

When we looked at the ROCE trend at Hangzhou Seck Intelligent Technology, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.8% from 25% five years ago. However it looks like Hangzhou Seck Intelligent 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.

The Bottom Line

In summary, Hangzhou Seck Intelligent Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly then, the total return to shareholders over the last three years has been flat. 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.

Hangzhou Seck Intelligent Technology does have some risks though, and we've spotted 1 warning sign for Hangzhou Seck Intelligent 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.