The Returns At Centre Testing International Group (SZSE:300012) Aren't Growing

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.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Centre Testing International Group, this is the formula:

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

0.12 = CN¥841m ÷ (CN¥8.6b - CN¥1.4b) (Based on the trailing twelve months to June 2024).

Thus, Centre Testing International Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.1% generated by the Professional Services industry.

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Centre Testing International Group .

What Can We Tell From Centre Testing International Group's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 140% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% 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.

The Key Takeaway

The main thing to remember is that Centre Testing International Group has proven its ability to continually reinvest at respectable rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

While Centre Testing International Group doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 300012 on our platform.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.