Guangzhou Risong Intelligent Technology Holding (SHSE:688090) Will Want To Turn Around Its Return Trends

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Guangzhou Risong Intelligent Technology Holding (SHSE:688090), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Guangzhou Risong Intelligent Technology Holding:

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

0.028 = CN¥28m ÷ (CN¥1.6b - CN¥629m) (Based on the trailing twelve months to September 2024).

Therefore, Guangzhou Risong Intelligent Technology Holding has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 5.2%.

See our latest analysis for Guangzhou Risong Intelligent Technology Holding

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'd like to look at how Guangzhou Risong Intelligent Technology Holding has performed in the past in other metrics, you can view this free graph of Guangzhou Risong Intelligent Technology Holding's past earnings, revenue and cash flow.

What Can We Tell From Guangzhou Risong Intelligent Technology Holding's ROCE Trend?

When we looked at the ROCE trend at Guangzhou Risong Intelligent Technology Holding, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.6% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Guangzhou Risong Intelligent Technology Holding is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 100% to shareholders over the last three years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Guangzhou Risong Intelligent Technology Holding does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While Guangzhou Risong Intelligent Technology Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.