Investors Will Want Moon Environment TechnologyLtd's (SZSE:000811) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Moon Environment TechnologyLtd (SZSE:000811) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Moon Environment TechnologyLtd is:

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

0.085 = CN¥575m ÷ (CN¥11b - CN¥4.3b) (Based on the trailing twelve months to June 2024).

Therefore, Moon Environment TechnologyLtd has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.7%.

View our latest analysis for Moon Environment TechnologyLtd

In the above chart we have measured Moon Environment TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Moon Environment TechnologyLtd .

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.5%. The amount of capital employed has increased too, by 62%. So we're very much inspired by what we're seeing at Moon Environment TechnologyLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Moon Environment TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 2 warning signs facing Moon Environment TechnologyLtd that you might find interesting.

While Moon Environment TechnologyLtd 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.