Returns On Capital Are Showing Encouraging Signs At Science Environmental Protection (SHSE:688480)

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. 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. So on that note, Science Environmental Protection (SHSE:688480) looks quite promising in regards to its trends of return on capital.

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 Science Environmental Protection is:

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

0.11 = CN¥126m ÷ (CN¥1.8b - CN¥577m) (Based on the trailing twelve months to September 2024).

Thus, Science Environmental Protection has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 5.3% it's much better.

See our latest analysis for Science Environmental Protection

In the above chart we have measured Science Environmental Protection'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 Science Environmental Protection for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Science Environmental Protection. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 157%. So we're very much inspired by what we're seeing at Science Environmental Protection thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Science Environmental Protection is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 18% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 2 warning signs we've spotted with Science Environmental Protection (including 1 which is significant) .

While Science Environmental Protection 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.