What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Wuxi HyatechLtd (SHSE:688510) and its trend of ROCE, we really liked what we saw.

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 it for Wuxi HyatechLtd:

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

0.11 = CN¥129m ÷ (CN¥1.7b - CN¥510m) (Based on the trailing twelve months to June 2024).

So, Wuxi HyatechLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Aerospace & Defense industry average of 4.1% it's much better.

In the above chart we have measured Wuxi HyatechLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wuxi HyatechLtd .

How Are Returns Trending?

We like the trends that we're seeing from Wuxi HyatechLtd. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 190% more capital is being employed now too. So we're very much inspired by what we're seeing at Wuxi HyatechLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Wuxi HyatechLtd is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 41% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Wuxi HyatechLtd we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Wuxi HyatechLtd 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.