The Return Trends At Shenzhen Kingsun Science & TechnologyLtd (SZSE:300235) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Shenzhen Kingsun Science & TechnologyLtd (SZSE:300235) and its trend of ROCE, we really liked 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. 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)

0.022 = CN¥15m ÷ (CN¥726m - CN¥20m) (Based on the trailing twelve months to September 2024).

So, Shenzhen Kingsun Science & TechnologyLtd has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 5.3%.

See our latest analysis for Shenzhen Kingsun Science & TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Kingsun Science & TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Shenzhen Kingsun Science & TechnologyLtd's past further, check out this free graph covering Shenzhen Kingsun Science & TechnologyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 133% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

To bring it all together, Shenzhen Kingsun Science & TechnologyLtd has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So with that in mind, we think the stock deserves further research.

Shenzhen Kingsun Science & TechnologyLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Shenzhen Kingsun Science & TechnologyLtd 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.

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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.