Chongqing YuXin Pingrui Electronic (SZSE:301107) Might Be Having Difficulty Using Its Capital Effectively

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Chongqing YuXin Pingrui Electronic (SZSE:301107) and its ROCE trend, we weren't exactly thrilled.

What Is 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 Chongqing YuXin Pingrui Electronic is:

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

0.031 = CN¥29m ÷ (CN¥1.2b - CN¥241m) (Based on the trailing twelve months to June 2024).

Therefore, Chongqing YuXin Pingrui Electronic has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 5.9%.

Check out our latest analysis for Chongqing YuXin Pingrui Electronic

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

What Does the ROCE Trend For Chongqing YuXin Pingrui Electronic Tell Us?

On the surface, the trend of ROCE at Chongqing YuXin Pingrui Electronic doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.1% from 14% five years ago. However it looks like Chongqing YuXin Pingrui Electronic might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Bottom Line

In summary, Chongqing YuXin Pingrui Electronic is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 27% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Chongqing YuXin Pingrui Electronic does have some risks though, and we've spotted 1 warning sign for Chongqing YuXin Pingrui Electronic that you might be interested in.

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.