Returns On Capital At Astro-century Education&TechnologyLtd (SZSE:300654) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Astro-century Education&TechnologyLtd (SZSE:300654), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Astro-century Education&TechnologyLtd:

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

0.06 = CN¥52m ÷ (CN¥1.2b - CN¥316m) (Based on the trailing twelve months to September 2024).

Therefore, Astro-century Education&TechnologyLtd has an ROCE of 6.0%. In absolute terms, that's a low return but it's around the Media industry average of 5.2%.

See our latest analysis for Astro-century Education&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're interested in investigating Astro-century Education&TechnologyLtd's past further, check out this free graph covering Astro-century Education&TechnologyLtd's past earnings, revenue and cash flow.

So How Is Astro-century Education&TechnologyLtd's ROCE Trending?

There are better returns on capital out there than what we're seeing at Astro-century Education&TechnologyLtd. Over the past five years, ROCE has remained relatively flat at around 6.0% and the business has deployed 76% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In summary, Astro-century Education&TechnologyLtd has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 116% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 1 warning sign for Astro-century Education&TechnologyLtd you'll probably want to know about.

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.

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.