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

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. 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. However, after briefly looking over the numbers, we don't think Astro-century Education&TechnologyLtd (SZSE:300654) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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. 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)

0.058 = CN¥49m ÷ (CN¥1.1b - CN¥214m) (Based on the trailing twelve months to June 2024).

Therefore, Astro-century Education&TechnologyLtd has an ROCE of 5.8%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.1%.

View 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Astro-century Education&TechnologyLtd.

What Can We Tell From Astro-century Education&TechnologyLtd's ROCE Trend?

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 5.8% and the business has deployed 82% 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.

What We Can Learn From Astro-century Education&TechnologyLtd's ROCE

In conclusion, Astro-century Education&TechnologyLtd has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 76% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

While Astro-century Education&TechnologyLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 300654 on our platform.

While Astro-century Education&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.