If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. In light of that, when we looked at Hangzhou DPtech TechnologiesLtd (SZSE:300768) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Hangzhou DPtech TechnologiesLtd:

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

0.025 = CN¥82m ÷ (CN¥3.7b - CN¥462m) (Based on the trailing twelve months to June 2024).

So, Hangzhou DPtech TechnologiesLtd has an ROCE of 2.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 2.9%.

In the above chart we have measured Hangzhou DPtech TechnologiesLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hangzhou DPtech TechnologiesLtd for free.

What Can We Tell From Hangzhou DPtech TechnologiesLtd's ROCE Trend?

When we looked at the ROCE trend at Hangzhou DPtech TechnologiesLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Hangzhou DPtech TechnologiesLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Hangzhou DPtech TechnologiesLtd is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 46% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Hangzhou DPtech TechnologiesLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 300768 on our platform quite valuable.

While Hangzhou DPtech TechnologiesLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.