The Returns At Zhejiang Sanhua Intelligent ControlsLtd (SZSE:002050) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Zhejiang Sanhua Intelligent ControlsLtd (SZSE:002050) looks decent, right now, so lets see what the trend of returns can tell us.

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 Zhejiang Sanhua Intelligent ControlsLtd:

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

0.17 = CN¥3.6b ÷ (CN¥33b - CN¥12b) (Based on the trailing twelve months to June 2024).

Therefore, Zhejiang Sanhua Intelligent ControlsLtd has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.5% it's much better.

View our latest analysis for Zhejiang Sanhua Intelligent ControlsLtd

Above you can see how the current ROCE for Zhejiang Sanhua Intelligent ControlsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang Sanhua Intelligent ControlsLtd .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 141% more capital into its operations. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Zhejiang Sanhua Intelligent ControlsLtd's ROCE

In the end, Zhejiang Sanhua Intelligent ControlsLtd has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 82% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Zhejiang Sanhua Intelligent ControlsLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Zhejiang Sanhua Intelligent ControlsLtd 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.