Returns On Capital At Cscec Scimee Sci.&Tech.Ltd (SZSE:300425) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Cscec Scimee Sci.&Tech.Ltd (SZSE:300425) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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 Cscec Scimee Sci.&Tech.Ltd is:

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

0.069 = CN¥201m ÷ (CN¥4.4b - CN¥1.5b) (Based on the trailing twelve months to September 2024).

Thus, Cscec Scimee Sci.&Tech.Ltd has an ROCE of 6.9%. On its own that's a low return, but compared to the average of 5.2% generated by the Machinery industry, it's much better.

View our latest analysis for Cscec Scimee Sci.&Tech.Ltd

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 Cscec Scimee Sci.&Tech.Ltd has performed in the past in other metrics, you can view this free graph of Cscec Scimee Sci.&Tech.Ltd's past earnings, revenue and cash flow.

What Can We Tell From Cscec Scimee Sci.&Tech.Ltd's ROCE Trend?

The returns on capital haven't changed much for Cscec Scimee Sci.&Tech.Ltd in recent years. The company has consistently earned 6.9% for the last five years, and the capital employed within the business has risen 52% in that time. 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.

In Conclusion...

In conclusion, Cscec Scimee Sci.&Tech.Ltd has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 59% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 2 warning signs for Cscec Scimee Sci.&Tech.Ltd (1 can't be ignored) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.