Returns At Suzhou Recodeal Interconnect SystemLtd (SHSE:688800) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. In light of that, when we looked at Suzhou Recodeal Interconnect SystemLtd (SHSE:688800) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Suzhou Recodeal Interconnect SystemLtd is:

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

0.074 = CN¥156m ÷ (CN¥3.3b - CN¥1.2b) (Based on the trailing twelve months to December 2023).

So, Suzhou Recodeal Interconnect SystemLtd has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Electrical industry average of 6.3%.

Check out our latest analysis for Suzhou Recodeal Interconnect SystemLtd

Above you can see how the current ROCE for Suzhou Recodeal Interconnect SystemLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Suzhou Recodeal Interconnect SystemLtd for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Suzhou Recodeal Interconnect SystemLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 7.4% and the business has deployed 354% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Suzhou Recodeal Interconnect SystemLtd's ROCE

In summary, Suzhou Recodeal Interconnect SystemLtd has simply been reinvesting capital and generating the same low rate of return as before. And in the last year, the stock has given away 60% so the market doesn't look too hopeful on these trends strengthening any time soon. 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 2 warning signs for Suzhou Recodeal Interconnect SystemLtd you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.