Returns On Capital At Contemporary Amperex Technology (SZSE:300750) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. That's why when we briefly looked at Contemporary Amperex Technology's (SZSE:300750) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Contemporary Amperex Technology is:

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

0.11 = CN¥48b ÷ (CN¥715b - CN¥271b) (Based on the trailing twelve months to June 2024).

So, Contemporary Amperex Technology has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 5.9% it's much better.

Check out our latest analysis for Contemporary Amperex Technology

In the above chart we have measured Contemporary Amperex Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Contemporary Amperex Technology for free.

What Does the ROCE Trend For Contemporary Amperex Technology Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 833% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Contemporary Amperex Technology has consistently earned this amount. 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 Contemporary Amperex Technology's ROCE

The main thing to remember is that Contemporary Amperex Technology has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 535% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 1 warning sign for Contemporary Amperex Technology you'll probably want to know about.

While Contemporary Amperex Technology 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.