Shandong Yuma Sun-shading Technology's (SZSE:300993) Returns On Capital Not Reflecting Well On The Business

Did you know there are some financial metrics that can provide clues of a potential 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. Having said that, from a first glance at Shandong Yuma Sun-shading Technology (SZSE:300993) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Shandong Yuma Sun-shading Technology:

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

0.12 = CN¥167m ÷ (CN¥1.4b - CN¥96m) (Based on the trailing twelve months to September 2023).

Therefore, Shandong Yuma Sun-shading Technology has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Consumer Durables industry.

View our latest analysis for Shandong Yuma Sun-shading Technology

Above you can see how the current ROCE for Shandong Yuma Sun-shading Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shandong Yuma Sun-shading Technology for free.

How Are Returns Trending?

On the surface, the trend of ROCE at Shandong Yuma Sun-shading Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 26% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Shandong Yuma Sun-shading Technology's ROCE

While returns have fallen for Shandong Yuma Sun-shading Technology in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 24% over the last year, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you'd like to know about the risks facing Shandong Yuma Sun-shading Technology, we've discovered 1 warning sign that you should be aware of.

While Shandong Yuma Sun-shading Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.