What underlying trends should I look for in my business to find multibagger stocks? return Increased capital employed (ROCE) and, secondly, expanding base of capital used.This shows that it is a multi-function machine that can continuously reinvest earnings into the business and generate higher returns. do not have Hengxin Technology (HKG:1085) has the makings of a multibagger, let’s see why.

Understanding Return on Capital Employed (ROCE)

For those who don’t know what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital it uses in its operations. Analysts calculate Hengxin Technology using the following formula:

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

0.05 = CN¥92m ÷ (CN¥2.6b – CN¥753m) (Based on the last 12 months to June 2022).

therefore, Hengxin Technology’s ROCE is 5.0%. In absolute terms, this is a low return, well below the telecom industry average of 6.8%.

Check out Hengxin Technology’s latest analysis

Historical performance is a great place to start when researching stocks, so you can check Hengxin Technology’s ROCE gauge above against previous returns. If you want to see how it worked for you, check it out here. freedom Graphs of historical earnings, earnings and cash flow.

What is the return trend?

When it comes to Hengxin Technology’s historic ROCE movement, trends aren’t great. The return on capital over the last five years has declined from 9.5% five years ago to 5.0%. However, given that both capital employed and earnings are increasing, businesses now appear to be pursuing growth as a result of short-term earnings. If these investments are successful, this can bode very well for long-term stock performance.

On this matter, we noticed that the ratio of current liabilities to total assets increased to 29%, impacting ROCE. ROCE could actually be lower if current liabilities haven’t increased significantly. Keep an eye on this ratio as it can introduce new risks to your business if this metric gets too high.

Conclusion is…

In summary, it is good to see that Hengxin Technology is reinvesting for growth, resulting in increased sales, despite low profit margins in the short term. And he’s returned a massive 134% to shareholders over the past five years, so long-term investors should remain optimistic. So while potential trends may already be described by investors, we believe this stock deserves further investigation.

One more thing to note. 1 warning sign Using and understanding Hengxin Technology should be part of the investment process.

Hengxin Technology may not be the most profitable right now, but we’ve compiled a list of companies that currently have a return on equity of 25% or more.check this out freedom I’ll list them here.

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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …