Returns At Chengdu RML Technology (SZSE:301050) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Chengdu RML Technology (SZSE:301050) so let's look a bit deeper.

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

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 Chengdu RML Technology is:

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

0.11 = CN¥302m ÷ (CN¥4.2b - CN¥1.5b) (Based on the trailing twelve months to March 2024).

Therefore, Chengdu RML Technology has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Aerospace & Defense industry.

View our latest analysis for Chengdu RML Technology

Above you can see how the current ROCE for Chengdu RML Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Chengdu RML Technology for free.

What The Trend Of ROCE Can Tell Us

Chengdu RML Technology 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 11% on its capital. In addition to that, Chengdu RML Technology is employing 875% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Chengdu RML Technology's ROCE

In summary, it's great to see that Chengdu RML Technology has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 30% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

While Chengdu RML Technology looks impressive, no company is worth an infinite price. The intrinsic value infographic for 301050 helps visualize whether it is currently trading for a fair price.

While Chengdu RML Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.