Returns Are Gaining Momentum At China Electronics Huada Technology (HKG:85)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, China Electronics Huada Technology (HKG:85) looks quite promising in regards to its trends of return on capital.

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What Is 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. Analysts use this formula to calculate it for China Electronics Huada Technology:

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

0.16 = HK$410m ÷ (HK$4.2b - HK$1.7b) (Based on the trailing twelve months to June 2025).

Thus, China Electronics Huada Technology has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 4.1% generated by the Semiconductor industry.

See our latest analysis for China Electronics Huada Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Electronics Huada Technology's ROCE against it's prior returns. If you're interested in investigating China Electronics Huada Technology's past further, check out this free graph covering China Electronics Huada Technology's past earnings, revenue and cash flow.

So How Is China Electronics Huada Technology's ROCE Trending?

The trends we've noticed at China Electronics Huada Technology are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 16%. 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 21%. So we're very much inspired by what we're seeing at China Electronics Huada Technology thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 40%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

What We Can Learn From China Electronics Huada 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 China Electronics Huada Technology has. Since the stock has returned a staggering 171% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if China Electronics Huada Technology can keep these trends up, it could have a bright future ahead.

If you'd like to know more about China Electronics Huada Technology, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

While China Electronics Huada Technology 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.