Return Trends At Suzhou Alton Electrical & Mechanical Industry (SZSE:301187) Aren't Appealing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Suzhou Alton Electrical & Mechanical Industry's (SZSE:301187) ROCE trend, we were pretty happy with what we saw.

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

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 Alton Electrical & Mechanical Industry is:

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

0.17 = CN¥259m ÷ (CN¥2.8b - CN¥1.2b) (Based on the trailing twelve months to September 2024).

Therefore, Suzhou Alton Electrical & Mechanical Industry has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 9.6% it's much better.

See our latest analysis for Suzhou Alton Electrical & Mechanical Industry

In the above chart we have measured Suzhou Alton Electrical & Mechanical Industry's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Suzhou Alton Electrical & Mechanical Industry for free.

So How Is Suzhou Alton Electrical & Mechanical Industry's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 428% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Suzhou Alton Electrical & Mechanical Industry has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Another thing to note, Suzhou Alton Electrical & Mechanical Industry has a high ratio of current liabilities to total assets of 44%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

The main thing to remember is that Suzhou Alton Electrical & Mechanical Industry has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 59% to shareholders over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Suzhou Alton Electrical & Mechanical Industry does have some risks, we noticed 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

While Suzhou Alton Electrical & Mechanical Industry 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.