Returns At Wuxi Taiji Industry Limited (SHSE:600667) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Wuxi Taiji Industry Limited (SHSE:600667) 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)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Wuxi Taiji Industry Limited is:

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

0.089 = CN¥926m ÷ (CN¥31b - CN¥21b) (Based on the trailing twelve months to June 2024).

Thus, Wuxi Taiji Industry Limited has an ROCE of 8.9%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 4.2%.

View our latest analysis for Wuxi Taiji Industry Limited

In the above chart we have measured Wuxi Taiji Industry Limited's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wuxi Taiji Industry Limited .

What Does the ROCE Trend For Wuxi Taiji Industry Limited Tell Us?

Over the past five years, Wuxi Taiji Industry Limited's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Wuxi Taiji Industry Limited doesn't end up being a multi-bagger in a few years time.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 66% of total assets, this reported ROCE would probably be less than8.9% because total capital employed would be higher.The 8.9% ROCE could be even lower if current liabilities weren't 66% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

In Conclusion...

We can conclude that in regards to Wuxi Taiji Industry Limited's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 12% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Like most companies, Wuxi Taiji Industry Limited does come with some risks, and we've found 1 warning sign that you should be aware of.

While Wuxi Taiji Industry Limited 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.