Capital Allocation Trends At Tianjin Ruixin TechnologyLtd (SZSE:300828) Aren't Ideal

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Tianjin Ruixin TechnologyLtd (SZSE:300828), it didn't seem to tick all of these boxes.

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 Tianjin Ruixin TechnologyLtd is:

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

0.073 = CN¥57m ÷ (CN¥862m - CN¥75m) (Based on the trailing twelve months to September 2024).

So, Tianjin Ruixin TechnologyLtd has an ROCE of 7.3%. Even though it's in line with the industry average of 6.8%, it's still a low return by itself.

Check out our latest analysis for Tianjin Ruixin TechnologyLtd

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

How Are Returns Trending?

When we looked at the ROCE trend at Tianjin Ruixin TechnologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 7.3%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Tianjin Ruixin TechnologyLtd's ROCE

In summary, we're somewhat concerned by Tianjin Ruixin TechnologyLtd's diminishing returns on increasing amounts of capital. Despite the concerning underlying trends, the stock has actually gained 0.4% over the last three years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 1 warning sign facing Tianjin Ruixin TechnologyLtd that you might find interesting.

While Tianjin Ruixin TechnologyLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.