Some Investors May Be Worried About Suzhou Electrical Apparatus Science Academy's (SZSE:300215) Returns On Capital

What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Suzhou Electrical Apparatus Science Academy (SZSE:300215), we weren't too upbeat about how things were going.

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. Analysts use this formula to calculate it for Suzhou Electrical Apparatus Science Academy:

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

0.027 = CN¥58m ÷ (CN¥2.7b - CN¥542m) (Based on the trailing twelve months to September 2024).

So, Suzhou Electrical Apparatus Science Academy has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 6.1%.

See our latest analysis for Suzhou Electrical Apparatus Science Academy

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Suzhou Electrical Apparatus Science Academy's past further, check out this free graph covering Suzhou Electrical Apparatus Science Academy's past earnings, revenue and cash flow.

The Trend Of ROCE

The trend of returns that Suzhou Electrical Apparatus Science Academy is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 2.7% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 29% over that same period. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Suzhou Electrical Apparatus Science Academy's ROCE

To see Suzhou Electrical Apparatus Science Academy reducing the capital employed in the business in tandem with diminishing returns, is concerning. Investors must expect better things on the horizon though because the stock has risen 13% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing: We've identified 2 warning signs with Suzhou Electrical Apparatus Science Academy (at least 1 which can't be ignored) , and understanding these would certainly be useful.

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.