Investors Met With Slowing Returns on Capital At Centre Testing International Group (SZSE:300012)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Centre Testing International Group's (SZSE:300012) ROCE trend, we were pretty happy with what we saw.

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. Analysts use this formula to calculate it for Centre Testing International Group:

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

0.11 = CN¥783m ÷ (CN¥8.4b - CN¥1.4b) (Based on the trailing twelve months to March 2024).

Thus, Centre Testing International Group has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 5.7% it's much better.

View our latest analysis for Centre Testing International Group

Above you can see how the current ROCE for Centre Testing International Group 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 Centre Testing International Group .

So How Is Centre Testing International Group's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 142% more capital into its operations. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

What We Can Learn From Centre Testing International Group's ROCE

To sum it up, Centre Testing International Group has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 28% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you're still interested in Centre Testing International Group it's worth checking out our FREE intrinsic value approximation for 300012 to see if it's trading at an attractive price in other respects.

While Centre Testing International Group 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.