Returns At Zhejiang Zomax Transmission (SHSE:603767) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Zhejiang Zomax Transmission (SHSE:603767) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Zhejiang Zomax Transmission, this is the formula:

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

0.051 = CN¥78m ÷ (CN¥1.9b - CN¥331m) (Based on the trailing twelve months to March 2024).

So, Zhejiang Zomax Transmission has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 6.9%.

See our latest analysis for Zhejiang Zomax Transmission

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 Zhejiang Zomax Transmission's past further, check out this free graph covering Zhejiang Zomax Transmission's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Zhejiang Zomax Transmission has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 91% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Zhejiang Zomax Transmission's ROCE

To sum it up, Zhejiang Zomax Transmission is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 109% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Zhejiang Zomax Transmission can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Zhejiang Zomax Transmission you'll probably want to know about.

While Zhejiang Zomax Transmission 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.