Slowing Rates Of Return At Wuxi Smart Auto-Control Engineering (SZSE:002877) Leave Little Room For Excitement

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Wuxi Smart Auto-Control Engineering (SZSE:002877), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Wuxi Smart Auto-Control Engineering, this is the formula:

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

0.095 = CN¥146m ÷ (CN¥2.4b - CN¥897m) (Based on the trailing twelve months to September 2023).

So, Wuxi Smart Auto-Control Engineering has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 6.0% generated by the Machinery industry, it's much better.

View our latest analysis for Wuxi Smart Auto-Control Engineering

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 Wuxi Smart Auto-Control Engineering has performed in the past in other metrics, you can view this free graph of Wuxi Smart Auto-Control Engineering's past earnings, revenue and cash flow.

What Does the ROCE Trend For Wuxi Smart Auto-Control Engineering Tell Us?

In terms of Wuxi Smart Auto-Control Engineering's historical ROCE trend, it doesn't exactly demand attention. The company has employed 142% more capital in the last five years, and the returns on that capital have remained stable at 9.5%. 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.

What We Can Learn From Wuxi Smart Auto-Control Engineering's ROCE

In summary, Wuxi Smart Auto-Control Engineering has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Wuxi Smart Auto-Control Engineering, we've spotted 3 warning signs, and 1 of them can't be ignored.

While Wuxi Smart Auto-Control Engineering 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.