Returns On Capital At Pan Asian Microvent Tech (Jiangsu) (SHSE:688386) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Pan Asian Microvent Tech (Jiangsu)'s (SHSE:688386) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Pan Asian Microvent Tech (Jiangsu):

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

0.13 = CN¥106m ÷ (CN¥998m - CN¥177m) (Based on the trailing twelve months to March 2024).

So, Pan Asian Microvent Tech (Jiangsu) has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 5.5% it's much better.

Check out our latest analysis for Pan Asian Microvent Tech (Jiangsu)

In the above chart we have measured Pan Asian Microvent Tech (Jiangsu)'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 Pan Asian Microvent Tech (Jiangsu) for free.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 208% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Pan Asian Microvent Tech (Jiangsu) 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.

In Conclusion...

The main thing to remember is that Pan Asian Microvent Tech (Jiangsu) has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 57% over the last three years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing, we've spotted 1 warning sign facing Pan Asian Microvent Tech (Jiangsu) that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com