Guangdong Seneasy Intelligent TechnologyLtd (SZSE:301578) Is Looking To Continue Growing Its Returns On Capital

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Guangdong Seneasy Intelligent TechnologyLtd's (SZSE:301578) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Guangdong Seneasy Intelligent TechnologyLtd:

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

0.059 = CN¥62m ÷ (CN¥1.3b - CN¥304m) (Based on the trailing twelve months to September 2024).

Thus, Guangdong Seneasy Intelligent TechnologyLtd has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.6%.

Check out our latest analysis for Guangdong Seneasy Intelligent TechnologyLtd

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Guangdong Seneasy Intelligent TechnologyLtd.

What Can We Tell From Guangdong Seneasy Intelligent TechnologyLtd's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.9%. The amount of capital employed has increased too, by 924%. So we're very much inspired by what we're seeing at Guangdong Seneasy Intelligent TechnologyLtd thanks to its ability to profitably reinvest capital.

One more thing to note, Guangdong Seneasy Intelligent TechnologyLtd has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Guangdong Seneasy Intelligent TechnologyLtd's ROCE

In summary, it's great to see that Guangdong Seneasy Intelligent TechnologyLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 14% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Guangdong Seneasy Intelligent TechnologyLtd, we've spotted 4 warning signs, and 2 of them are concerning.

While Guangdong Seneasy Intelligent TechnologyLtd 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.