Shenzhen Inovance TechnologyLtd (SZSE:300124) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Shenzhen Inovance TechnologyLtd (SZSE:300124) looks decent, right now, so lets see what the trend of returns can tell us.

What Is 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. The formula for this calculation on Shenzhen Inovance TechnologyLtd is:

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

0.14 = CN¥4.4b ÷ (CN¥53b - CN¥21b) (Based on the trailing twelve months to September 2024).

Therefore, Shenzhen Inovance TechnologyLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.2% it's much better.

View our latest analysis for Shenzhen Inovance TechnologyLtd

In the above chart we have measured Shenzhen Inovance TechnologyLtd'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 Shenzhen Inovance TechnologyLtd .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 293% more capital in the last five years, and the returns on that capital have remained stable at 14%. Since 14% 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 Shenzhen Inovance TechnologyLtd's ROCE

To sum it up, Shenzhen Inovance TechnologyLtd has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 263% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Shenzhen Inovance TechnologyLtd, we've discovered 1 warning sign that you should be aware of.

While Shenzhen Inovance 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.

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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.