Sichuan Haite High-techLtd (SZSE:002023) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Sichuan Haite High-techLtd (SZSE:002023) and its trend of ROCE, we really liked what we saw.

What Is 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 Sichuan Haite High-techLtd is:

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

0.031 = CN¥187m ÷ (CN¥7.3b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

Thus, Sichuan Haite High-techLtd has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.1%.

See our latest analysis for Sichuan Haite High-techLtd

Above you can see how the current ROCE for Sichuan Haite High-techLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Sichuan Haite High-techLtd for free.

What Can We Tell From Sichuan Haite High-techLtd's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at Sichuan Haite High-techLtd promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 217% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Sichuan Haite High-techLtd's ROCE

To sum it up, Sichuan Haite High-techLtd is collecting higher returns from the same amount of capital, and that's impressive. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 1 warning sign facing Sichuan Haite High-techLtd that you might find interesting.

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.