Hitek Global (NASDAQ:HKIT) Will Be Hoping To Turn Its Returns On Capital Around

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Hitek Global (NASDAQ:HKIT) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Hitek Global, this is the formula:

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

0.05 = US$1.4m ÷ (US$33m - US$5.7m) (Based on the trailing twelve months to June 2023).

So, Hitek Global has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the IT industry average of 12%.

View our latest analysis for Hitek Global

roce

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hitek Global's past further, check out this free graph covering Hitek Global's past earnings, revenue and cash flow.

So How Is Hitek Global's ROCE Trending?

On the surface, the trend of ROCE at Hitek Global doesn't inspire confidence. To be more specific, ROCE has fallen from 45% over the last five years. However it looks like Hitek Global might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Hitek Global's ROCE

Bringing it all together, while we're somewhat encouraged by Hitek Global's reinvestment in its own business, we're aware that returns are shrinking. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 72% over the last year. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Hitek Global we've found 3 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

While Hitek Global 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.

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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.