Slowing Rates Of Return At Shenzhen RongDa Photosensitive Science & Technology (SZSE:300576) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Shenzhen RongDa Photosensitive Science & Technology's (SZSE:300576) ROCE trend, we were pretty happy with what we saw.

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. Analysts use this formula to calculate it for Shenzhen RongDa Photosensitive Science & Technology:

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

0.11 = CN¥145m ÷ (CN¥1.8b - CN¥382m) (Based on the trailing twelve months to September 2024).

So, Shenzhen RongDa Photosensitive Science & Technology has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

View our latest analysis for Shenzhen RongDa Photosensitive Science & Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen RongDa Photosensitive Science & Technology's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shenzhen RongDa Photosensitive Science & Technology.

So How Is Shenzhen RongDa Photosensitive Science & Technology's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 200% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Shenzhen RongDa Photosensitive Science & Technology has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Shenzhen RongDa Photosensitive Science & Technology has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 280% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Shenzhen RongDa Photosensitive Science & Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

While Shenzhen RongDa Photosensitive Science & Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.