Investors Will Want Sichuan Chengfei Integration TechnologyLtd's (SZSE:002190) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Sichuan Chengfei Integration TechnologyLtd's (SZSE:002190) returns on capital, so let's have a look.

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. The formula for this calculation on Sichuan Chengfei Integration TechnologyLtd is:

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

0.023 = CN¥81m ÷ (CN¥4.9b - CN¥1.3b) (Based on the trailing twelve months to March 2024).

So, Sichuan Chengfei Integration TechnologyLtd has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 6.9%.

View our latest analysis for Sichuan Chengfei Integration TechnologyLtd

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 Sichuan Chengfei Integration TechnologyLtd's past further, check out this free graph covering Sichuan Chengfei Integration TechnologyLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Sichuan Chengfei Integration TechnologyLtd Tell Us?

We're delighted to see that Sichuan Chengfei Integration TechnologyLtd is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 2.3% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 42% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Sichuan Chengfei Integration TechnologyLtd could be selling under-performing assets since the ROCE is improving.

In Conclusion...

From what we've seen above, Sichuan Chengfei Integration TechnologyLtd has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 15% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Sichuan Chengfei Integration TechnologyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

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