Returns On Capital At Suzhou SONAVOX ElectronicsLtd (SHSE:688533) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Suzhou SONAVOX ElectronicsLtd's (SHSE:688533) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Suzhou SONAVOX ElectronicsLtd is:

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

0.15 = CN¥317m ÷ (CN¥3.2b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

Therefore, Suzhou SONAVOX ElectronicsLtd has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Consumer Durables industry.

See our latest analysis for Suzhou SONAVOX ElectronicsLtd

In the above chart we have measured Suzhou SONAVOX ElectronicsLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Suzhou SONAVOX ElectronicsLtd .

So How Is Suzhou SONAVOX ElectronicsLtd's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 210% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that Suzhou SONAVOX ElectronicsLtd has consistently earned this amount. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 35% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

To sum it up, Suzhou SONAVOX ElectronicsLtd has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last three years the stock has declined 23%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you'd like to know more about Suzhou SONAVOX ElectronicsLtd, we've spotted 3 warning signs, and 2 of them are potentially serious.

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.