Returns Are Gaining Momentum At Kunshan GuoLi Electronic Technology (SHSE:688103)

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Kunshan GuoLi Electronic Technology (SHSE:688103) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kunshan GuoLi Electronic Technology:

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

0.035 = CN¥57m ÷ (CN¥2.1b - CN¥465m) (Based on the trailing twelve months to March 2024).

Therefore, Kunshan GuoLi Electronic Technology has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 6.0%.

See our latest analysis for Kunshan GuoLi Electronic Technology

In the above chart we have measured Kunshan GuoLi Electronic Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Kunshan GuoLi Electronic Technology for free.

The Trend Of ROCE

We're delighted to see that Kunshan GuoLi Electronic Technology is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 3.5% on its capital. In addition to that, Kunshan GuoLi Electronic Technology is employing 236% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Kunshan GuoLi Electronic Technology has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 42% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 1 warning sign with Kunshan GuoLi Electronic Technology and understanding it should be part of your investment process.

While Kunshan GuoLi Electronic 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.

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