Longmaster Information & Technology (SZSE:300288) Will Be Looking To Turn Around Its Returns

When researching a stock for investment, what can tell us that the company is in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Longmaster Information & Technology (SZSE:300288), the trends above didn't look too great.

Understanding 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. The formula for this calculation on Longmaster Information & Technology is:

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

0.03 = CN¥49m ÷ (CN¥1.9b - CN¥217m) (Based on the trailing twelve months to June 2024).

Therefore, Longmaster Information & Technology has an ROCE of 3.0%. On its own that's a low return, but compared to the average of 1.2% generated by the Healthcare Services industry, it's much better.

View our latest analysis for Longmaster Information & Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Longmaster Information & Technology's ROCE against it's prior returns. If you'd like to look at how Longmaster Information & Technology has performed in the past in other metrics, you can view this free graph of Longmaster Information & Technology's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Longmaster Information & Technology. About five years ago, returns on capital were 5.4%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Longmaster Information & Technology to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that Longmaster Information & Technology is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 7.9% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

While Longmaster Information & Technology doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 300288 on our platform.

While Longmaster Information & 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.