Capital Allocation Trends At LD Intelligent Technology (SZSE:300883) 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? 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. In light of that, when we looked at LD Intelligent Technology (SZSE:300883) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for LD Intelligent Technology, this is the formula:

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

0.009 = CN¥15m ÷ (CN¥2.2b - CN¥523m) (Based on the trailing twelve months to March 2024).

So, LD Intelligent Technology has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 4.7%.

See our latest analysis for LD Intelligent 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'd like to look at how LD Intelligent Technology has performed in the past in other metrics, you can view this free graph of LD Intelligent Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at LD Intelligent Technology, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On LD Intelligent Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for LD Intelligent Technology. And there could be an opportunity here if other metrics look good too, because the stock has declined 65% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you'd like to know about the risks facing LD Intelligent Technology, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.