Sunresin New MaterialsLtd (SZSE:300487) Is Achieving High Returns On Its Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Sunresin New MaterialsLtd's (SZSE:300487) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Sunresin New MaterialsLtd:

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

0.22 = CN¥911m ÷ (CN¥6.0b - CN¥1.8b) (Based on the trailing twelve months to June 2024).

Thus, Sunresin New MaterialsLtd has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 5.7% earned by companies in a similar industry.

View our latest analysis for Sunresin New MaterialsLtd

In the above chart we have measured Sunresin New MaterialsLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Sunresin New MaterialsLtd .

What Can We Tell From Sunresin New MaterialsLtd's ROCE Trend?

Investors would be pleased with what's happening at Sunresin New MaterialsLtd. The data shows that returns on capital have increased substantially over the last five years to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 187%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Sunresin New MaterialsLtd's ROCE

To sum it up, Sunresin New MaterialsLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 170% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Sunresin New MaterialsLtd can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Sunresin New MaterialsLtd that we think you should be aware of.

Sunresin New MaterialsLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.