Suzhou Nanomicro Technology (SHSE:688690) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Suzhou Nanomicro Technology (SHSE:688690) and its ROCE trend, we weren't exactly thrilled.

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 Nanomicro Technology is:

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

0.032 = CN¥63m ÷ (CN¥2.3b - CN¥289m) (Based on the trailing twelve months to June 2024).

Thus, Suzhou Nanomicro Technology has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.5%.

View our latest analysis for Suzhou Nanomicro Technology

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'd like to look at how Suzhou Nanomicro Technology has performed in the past in other metrics, you can view this free graph of Suzhou Nanomicro Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

The returns on capital haven't changed much for Suzhou Nanomicro Technology in recent years. The company has employed 419% more capital in the last five years, and the returns on that capital have remained stable at 3.2%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Suzhou Nanomicro Technology's ROCE

Long story short, while Suzhou Nanomicro Technology has been reinvesting its capital, the returns that it's generating haven't increased. Moreover, since the stock has crumbled 81% over the last three years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think Suzhou Nanomicro Technology has the makings of a multi-bagger.

If you'd like to know about the risks facing Suzhou Nanomicro Technology, we've discovered 2 warning signs that you should be aware of.

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.