There's Been No Shortage Of Growth Recently For Suzhou Kingswood Education Technology's (SZSE:300192) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Suzhou Kingswood Education Technology (SZSE:300192) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Suzhou Kingswood Education Technology, this is the formula:

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

0.17 = CN¥151m ÷ (CN¥1.2b - CN¥317m) (Based on the trailing twelve months to September 2023).

Thus, Suzhou Kingswood Education Technology has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 5.6% it's much better.

Check out our latest analysis for Suzhou Kingswood Education 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're interested in investigating Suzhou Kingswood Education Technology's past further, check out this free graph covering Suzhou Kingswood Education Technology's past earnings, revenue and cash flow.

What Can We Tell From Suzhou Kingswood Education Technology's ROCE Trend?

Suzhou Kingswood Education Technology has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 93%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Suzhou Kingswood Education Technology appears to been achieving more with less, since the business is using 29% less capital to run its operation. Suzhou Kingswood Education Technology may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In the end, Suzhou Kingswood Education Technology has proven it's capital allocation skills are good with those higher returns from less amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing to note, we've identified 2 warning signs with Suzhou Kingswood Education Technology and understanding these should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.