Be Wary Of Nantong Guosheng Intelligence Technology Group (SHSE:688558) And Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to 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. 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 Nantong Guosheng Intelligence Technology Group (SHSE:688558), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. To calculate this metric for Nantong Guosheng Intelligence Technology Group, this is the formula:

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

0.10 = CN¥164m ÷ (CN¥2.0b - CN¥409m) (Based on the trailing twelve months to December 2023).

So, Nantong Guosheng Intelligence Technology Group has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 6.1% it's much better.

View our latest analysis for Nantong Guosheng Intelligence Technology Group

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 Nantong Guosheng Intelligence Technology Group has performed in the past in other metrics, you can view this free graph of Nantong Guosheng Intelligence Technology Group's past earnings, revenue and cash flow.

What Can We Tell From Nantong Guosheng Intelligence Technology Group's ROCE Trend?

On the surface, the trend of ROCE at Nantong Guosheng Intelligence Technology Group doesn't inspire confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 10%. However it looks like Nantong Guosheng Intelligence Technology Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Nantong Guosheng Intelligence Technology Group's ROCE

To conclude, we've found that Nantong Guosheng Intelligence Technology Group is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 37% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a separate note, we've found 1 warning sign for Nantong Guosheng Intelligence Technology Group you'll probably want to know about.

While Nantong Guosheng Intelligence Technology Group 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.