We Like These Underlying Return On Capital Trends At Asiainfo Technologies (HKG:1675)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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, Asiainfo Technologies (HKG:1675) looks quite promising in regards to its trends of return on capital.

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 Asiainfo Technologies is:

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

0.10 = CN¥670m ÷ (CN¥9.4b - CN¥2.9b) (Based on the trailing twelve months to June 2022).

So, Asiainfo Technologies has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.2% generated by the Software industry.

Check out our latest analysis for Asiainfo Technologies

Above you can see how the current ROCE for Asiainfo Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Asiainfo Technologies' ROCE Trending?

Asiainfo Technologies is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 10%. 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 72%. So we're very much inspired by what we're seeing at Asiainfo Technologies thanks to its ability to profitably reinvest capital.

One more thing to note, Asiainfo Technologies has decreased current liabilities to 31% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Asiainfo Technologies' 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 Asiainfo Technologies has. And with a respectable 59% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Asiainfo Technologies can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Asiainfo Technologies and understanding this should be part of your investment process.

While Asiainfo Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.