Should We Be Excited About The Trends Of Returns At Sinosoft Technology Group (HKG:1297)?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Sinosoft Technology Group's (HKG:1297) ROCE trend, we were pretty happy with what we saw.

Understanding 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 Sinosoft Technology Group:

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

0.16 = CN¥295m ÷ (CN¥2.0b - CN¥233m) (Based on the trailing twelve months to June 2020).

Therefore, Sinosoft Technology Group has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 3.4% it's much better.

View our latest analysis for Sinosoft Technology Group

Above you can see how the current ROCE for Sinosoft Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Sinosoft Technology Group.

What Can We Tell From Sinosoft Technology Group's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 123% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Sinosoft Technology Group's ROCE

To sum it up, Sinosoft Technology Group has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 39%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you want to continue researching Sinosoft Technology Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Sinosoft Technology Group 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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