The Returns On Capital At Zoomlion Heavy Industry Science and Technology (SZSE:000157) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Having said that, from a first glance at Zoomlion Heavy Industry Science and Technology (SZSE:000157) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Zoomlion Heavy Industry Science and Technology, this is the formula:

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

0.038 = CN¥3.2b ÷ (CN¥133b - CN¥50b) (Based on the trailing twelve months to March 2024).

So, Zoomlion Heavy Industry Science and Technology has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.9%.

Check out our latest analysis for Zoomlion Heavy Industry Science and Technology

In the above chart we have measured Zoomlion Heavy Industry Science and Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zoomlion Heavy Industry Science and Technology .

The Trend Of ROCE

When we looked at the ROCE trend at Zoomlion Heavy Industry Science and Technology, we didn't gain much confidence. Around five years ago the returns on capital were 7.0%, but since then they've fallen to 3.8%. 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 On Zoomlion Heavy Industry Science and Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Zoomlion Heavy Industry Science and Technology. Furthermore the stock has climbed 92% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

Zoomlion Heavy Industry Science and Technology does have some risks though, and we've spotted 3 warning signs for Zoomlion Heavy Industry Science and Technology that you might be interested in.

While Zoomlion Heavy Industry Science and Technology 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.