Xi'an Sinofuse Electric (SZSE:301031) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Xi'an Sinofuse Electric's (SZSE:301031) trend of ROCE, we liked what we saw.

What Is 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. The formula for this calculation on Xi'an Sinofuse Electric is:

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

0.17 = CN¥172m ÷ (CN¥1.6b - CN¥592m) (Based on the trailing twelve months to September 2023).

Therefore, Xi'an Sinofuse Electric has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Electrical industry.

View our latest analysis for Xi'an Sinofuse Electric

Above you can see how the current ROCE for Xi'an Sinofuse Electric compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Xi'an Sinofuse Electric .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 811% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Xi'an Sinofuse Electric's ROCE

The main thing to remember is that Xi'an Sinofuse Electric has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 24% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing: We've identified 2 warning signs with Xi'an Sinofuse Electric (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Xi'an Sinofuse Electric 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.