Investors Will Want Shenzhen Tellus Holding's (SZSE:000025) Growth In ROCE To Persist

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Shenzhen Tellus Holding (SZSE:000025) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Shenzhen Tellus Holding, this is the formula:

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

0.054 = CN¥105m ÷ (CN¥2.5b - CN¥569m) (Based on the trailing twelve months to September 2024).

Therefore, Shenzhen Tellus Holding has an ROCE of 5.4%. On its own, that's a low figure but it's around the 5.7% average generated by the Retail Distributors industry.

Check out our latest analysis for Shenzhen Tellus Holding

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

So How Is Shenzhen Tellus Holding's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 63% more capital is being employed now too. So we're very much inspired by what we're seeing at Shenzhen Tellus Holding thanks to its ability to profitably reinvest capital.

One more thing to note, Shenzhen Tellus Holding has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Shenzhen Tellus Holding has. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Shenzhen Tellus Holding 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.

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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.