Guangdong Silver Age Sci & TechLtd (SZSE:300221) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Guangdong Silver Age Sci & TechLtd (SZSE:300221) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Guangdong Silver Age Sci & TechLtd, this is the formula:

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

0.04 = CN¥60m ÷ (CN¥2.2b - CN¥663m) (Based on the trailing twelve months to June 2024).

Thus, Guangdong Silver Age Sci & TechLtd has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.5%.

Check out our latest analysis for Guangdong Silver Age Sci & TechLtd

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

How Are Returns Trending?

Guangdong Silver Age Sci & TechLtd has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.0% which is a sight for sore eyes. In addition to that, Guangdong Silver Age Sci & TechLtd is employing 21% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

In summary, it's great to see that Guangdong Silver Age Sci & TechLtd has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 24% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 1 warning sign for Guangdong Silver Age Sci & TechLtd you'll probably want to know about.

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.