Here's What's Concerning About Suzhou Electrical Apparatus Science Academy's (SZSE:300215) Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Suzhou Electrical Apparatus Science Academy (SZSE:300215), so let's see why.

What Is Return On Capital Employed (ROCE)?

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 Suzhou Electrical Apparatus Science Academy is:

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

0.024 = CN¥57m ÷ (CN¥2.8b - CN¥404m) (Based on the trailing twelve months to March 2024).

So, Suzhou Electrical Apparatus Science Academy has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 5.7%.

Check out our latest analysis for Suzhou Electrical Apparatus Science Academy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Suzhou Electrical Apparatus Science Academy's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Suzhou Electrical Apparatus Science Academy.

What Does the ROCE Trend For Suzhou Electrical Apparatus Science Academy Tell Us?

We are a bit worried about the trend of returns on capital at Suzhou Electrical Apparatus Science Academy. Unfortunately the returns on capital have diminished from the 6.3% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Suzhou Electrical Apparatus Science Academy to turn into a multi-bagger.

Our Take On Suzhou Electrical Apparatus Science Academy's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors must expect better things on the horizon though because the stock has risen 21% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we found 3 warning signs for Suzhou Electrical Apparatus Science Academy (2 are concerning) you should be aware of.

While Suzhou Electrical Apparatus Science Academy 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.