Sijin Intelligent Forming Machinery's (SZSE:003025) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Sijin Intelligent Forming Machinery (SZSE:003025), it didn't seem to tick all of these boxes.

Understanding 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. The formula for this calculation on Sijin Intelligent Forming Machinery is:

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

0.13 = CN¥146m ÷ (CN¥1.3b - CN¥177m) (Based on the trailing twelve months to September 2024).

Therefore, Sijin Intelligent Forming Machinery has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Machinery industry.

Check out our latest analysis for Sijin Intelligent Forming Machinery

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sijin Intelligent Forming Machinery.

What Does the ROCE Trend For Sijin Intelligent Forming Machinery Tell Us?

On the surface, the trend of ROCE at Sijin Intelligent Forming Machinery doesn't inspire confidence. Around five years ago the returns on capital were 21%, but since then they've fallen to 13%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Sijin Intelligent Forming Machinery's ROCE

While returns have fallen for Sijin Intelligent Forming Machinery in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, total returns to shareholders over the last three years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing, we've spotted 2 warning signs facing Sijin Intelligent Forming Machinery that you might find interesting.

While Sijin Intelligent Forming Machinery 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.