Returns On Capital Signal Tricky Times Ahead For Nanjing Quanxin Cable Technology (SZSE:300447)

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Nanjing Quanxin Cable Technology (SZSE:300447), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Nanjing Quanxin Cable Technology, this is the formula:

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

0.039 = CN¥80m ÷ (CN¥2.7b - CN¥633m) (Based on the trailing twelve months to September 2024).

Therefore, Nanjing Quanxin Cable Technology has an ROCE of 3.9%. Even though it's in line with the industry average of 4.4%, it's still a low return by itself.

See our latest analysis for Nanjing Quanxin Cable Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nanjing Quanxin Cable Technology's ROCE against it's prior returns. If you'd like to look at how Nanjing Quanxin Cable Technology has performed in the past in other metrics, you can view this free graph of Nanjing Quanxin Cable Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Nanjing Quanxin Cable Technology's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.9% from 8.7% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Nanjing Quanxin Cable Technology's ROCE

In summary, Nanjing Quanxin Cable Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 40% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Nanjing Quanxin Cable Technology, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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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.