Investors Met With Slowing Returns on Capital At AIMA Technology Group (SHSE:603529)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at AIMA Technology Group's (SHSE:603529) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on AIMA Technology Group is:

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

0.19 = CN¥1.9b ÷ (CN¥22b - CN¥13b) (Based on the trailing twelve months to September 2023).

Therefore, AIMA Technology Group has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 3.0% generated by the Auto industry.

View our latest analysis for AIMA Technology Group

Above you can see how the current ROCE for AIMA Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for AIMA Technology Group .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 545% more capital into its operations. 19% is a pretty standard return, and it provides some comfort knowing that AIMA Technology Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, AIMA Technology Group has done well to reduce current liabilities to 57% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 57%, some of that risk is still prevalent.

In Conclusion...

In the end, AIMA Technology Group has proven its ability to adequately reinvest capital at good rates of return. Yet over the last year the stock has declined 17%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing, we've spotted 1 warning sign facing AIMA Technology Group that you might find interesting.

While AIMA Technology Group 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.