There's Been No Shortage Of Growth Recently For Sichuan Haite High-techLtd's (SZSE:002023) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Sichuan Haite High-techLtd (SZSE:002023) so let's look a bit deeper.

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)

0.019 = CN¥117m ÷ (CN¥7.2b - CN¥995m) (Based on the trailing twelve months to September 2023).

Therefore, Sichuan Haite High-techLtd has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.2%.

See our latest analysis for Sichuan Haite High-techLtd

In the above chart we have measured Sichuan Haite High-techLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Sichuan Haite High-techLtd for free.

What Does the ROCE Trend For Sichuan Haite High-techLtd Tell Us?

Sichuan Haite High-techLtd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.9% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

To sum it up, Sichuan Haite High-techLtd is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Sichuan Haite High-techLtd does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

While Sichuan Haite High-techLtd 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.