The Return Trends At Zhejiang Chang’an Renheng Technology (HKG:8139) Look Promising – Simply Wall St

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital used. Ultimately, this demonstrates that will it’s a business that is reinvesting profits at increasing rates associated with return. With that in mind, we’ve noticed some promising styles at Zhejiang Chang’an Renheng Technology ( HKG: 8139 ) so let’s look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate this for Zhejiang Chang’an Renheng Technology:

Come back on Funds Employed = Earnings Before Interest plus Tax (EBIT) ÷ (Total Assets — Current Liabilities)

0. 076 sama dengan CN¥8. 7m ÷ (CN¥279m – CN¥164m) (Based on the trailing twelve months to June 2022) .

Thus, Zhejiang Chang’an Renheng Technology has an ROCE of 7. 6%. In absolute terms, that’s a low return and it also under-performs the particular Chemicals industry average associated with 12%.

View our latest analysis for Zhejiang Chang’an Renheng Technologies

SEHK: 8139 Return on Capital Employed September 30th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge with regard to Zhejiang Chang’an Renheng Technology’s ROCE against it’s prior returns. If you want to delve into the historical earnings, revenue and cash flow of Zhejiang Chang’an Renheng Technology, check out these free graphs here .

What Can We Tell From Zhejiang Chang’an Renheng Technology’s ROCE Trend?

Zhejiang Chang’an Renheng Technology has not disappointed with their ROCE growth. More specifically, while the particular company has kept capital employed relatively flat over the last five years, the ROCE has climbed 29% within that same time. So our take on this is that the company has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It’s worth looking deeper into this particular though because while it’s great that the business is more efficient, it might furthermore mean that will going forward the areas to invest internally for the organic growth are lacking.

For the record though, there was the noticeable increase in the company’s current liabilities over the period, so we would attribute some of the particular ROCE development to that. Essentially the business now offers suppliers or short-term creditors funding about 59% of its operations, which isn’t ideal. Given it can pretty high ratio, we’d remind investors that having current financial obligations at those levels can bring about some risks in certain businesses.

The particular Bottom Line

To sum it up, Zhejiang Chang’an Renheng Technology will be collecting higher returns through the same amount of capital, and that’s impressive. However the stock will be down a substantial 71% in the last five many years so there could be other areas of the company hurting its prospects. Still, it’s worth doing some further research in order to see if the trends will continue into the future.

One more thing: We’ve identified 4 warning signs with Zhejiang Chang’an Renheng Technology (at least 2 which are a little bit concerning) , and understanding these might certainly be useful.

While Zhejiang Chang’an Renheng Technologies may not really currently earn the highest earnings, we’ve compiled a list of companies that currently earn a lot more than 25% return upon equity. Check out this totally free list right here.

This article by Simply Walls St is usually general in nature. We provide commentary based on historical data and analyst forecasts only using a good 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 even your financial situation. We aim to bring a person long-term focused analysis driven by fundamental data. Note that our own analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Valuation is complex, but we’re helping create it simple.

Find out whether Zhejiang Chang’an Renheng Technology is usually potentially more than or undervalued by checking out the comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions plus financial health.

See the Free Analysis