Returns On Capital Are Showing Encouraging Signs At Shenzhen Kingsun Science & TechnologyLtd (SZSE:300235)

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. 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. With that in mind, we've noticed some promising trends at Shenzhen Kingsun Science & TechnologyLtd (SZSE:300235) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Shenzhen Kingsun Science & TechnologyLtd is:

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

0.032 = CN¥23m ÷ (CN¥731m - CN¥21m) (Based on the trailing twelve months to March 2024).

Therefore, Shenzhen Kingsun Science & TechnologyLtd has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 5.4%.

View our latest analysis for Shenzhen Kingsun Science & TechnologyLtd

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 Shenzhen Kingsun Science & TechnologyLtd has performed in the past in other metrics, you can view this free graph of Shenzhen Kingsun Science & TechnologyLtd's past earnings, revenue and cash flow.

What Can We Tell From Shenzhen Kingsun Science & TechnologyLtd's ROCE Trend?

Shareholders will be relieved that Shenzhen Kingsun Science & TechnologyLtd has broken into profitability. The company now earns 3.2% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Shenzhen Kingsun Science & TechnologyLtd has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line

To bring it all together, Shenzhen Kingsun Science & TechnologyLtd has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 12% 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.

If you want to continue researching Shenzhen Kingsun Science & TechnologyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.