Investors Will Want Hangzhou SF Intra-city Industrial's (HKG:9699) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Hangzhou SF Intra-city Industrial (HKG:9699) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hangzhou SF Intra-city Industrial is:

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

0.0064 = CN¥19m ÷ (CN¥4.2b - CN¥1.2b) (Based on the trailing twelve months to December 2023).

Thus, Hangzhou SF Intra-city Industrial has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 6.5%.

See our latest analysis for Hangzhou SF Intra-city Industrial

Above you can see how the current ROCE for Hangzhou SF Intra-city Industrial 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 analyst report for Hangzhou SF Intra-city Industrial .

What Does the ROCE Trend For Hangzhou SF Intra-city Industrial Tell Us?

We're delighted to see that Hangzhou SF Intra-city Industrial is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making three years ago but is is now generating 0.6% on its capital. In addition to that, Hangzhou SF Intra-city Industrial is employing 665% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 29%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

Long story short, we're delighted to see that Hangzhou SF Intra-city Industrial's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 15% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 9699 that compares the share price and estimated value.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.