Investors Will Want WenYi Trinity Technology's (SHSE:600520) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in WenYi Trinity Technology's (SHSE:600520) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on WenYi Trinity Technology is:

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

0.048 = CN¥18m ÷ (CN¥564m - CN¥184m) (Based on the trailing twelve months to September 2024).

So, WenYi Trinity Technology has an ROCE of 4.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.2%.

See our latest analysis for WenYi Trinity Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for WenYi Trinity Technology's ROCE against it's prior returns. If you'd like to look at how WenYi Trinity Technology has performed in the past in other metrics, you can view this free graph of WenYi Trinity Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

WenYi Trinity Technology has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 4.8% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that WenYi Trinity Technology has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

As discussed above, WenYi Trinity Technology appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 239% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for WenYi Trinity Technology you'll probably want to know about.

While WenYi Trinity Technology 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.