Chongqing Mas Sci.&Tech.Co.Ltd (SZSE:300275) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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, Chongqing Mas Sci.&Tech.Co.Ltd (SZSE:300275) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Chongqing Mas Sci.&Tech.Co.Ltd, this is the formula:

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

0.059 = CN¥55m ÷ (CN¥1.3b - CN¥353m) (Based on the trailing twelve months to March 2024).

Thus, Chongqing Mas Sci.&Tech.Co.Ltd has an ROCE of 5.9%. Even though it's in line with the industry average of 5.6%, it's still a low return by itself.

Check out our latest analysis for Chongqing Mas Sci.&Tech.Co.Ltd

In the above chart we have measured Chongqing Mas Sci.&Tech.Co.Ltd'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 Chongqing Mas Sci.&Tech.Co.Ltd .

So How Is Chongqing Mas Sci.&Tech.Co.Ltd's ROCE Trending?

Chongqing Mas Sci.&Tech.Co.Ltd has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Chongqing Mas Sci.&Tech.Co.Ltd is utilizing 80% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Chongqing Mas Sci.&Tech.Co.Ltd's ROCE

Overall, Chongqing Mas Sci.&Tech.Co.Ltd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 86% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Chongqing Mas Sci.&Tech.Co.Ltd can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 300275 on our platform that is definitely worth checking out.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.