Returns Are Gaining Momentum At Shenyang Fortune Precision Equipment (SHSE:688409)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Shenyang Fortune Precision Equipment (SHSE:688409) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Shenyang Fortune Precision Equipment, this is the formula:

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

0.023 = CN¥152m ÷ (CN¥7.6b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

Thus, Shenyang Fortune Precision Equipment has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 3.9%.

Check out our latest analysis for Shenyang Fortune Precision Equipment

Above you can see how the current ROCE for Shenyang Fortune Precision Equipment compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shenyang Fortune Precision Equipment for free.

The Trend Of ROCE

We're delighted to see that Shenyang Fortune Precision Equipment is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.3% which is a sight for sore eyes. In addition to that, Shenyang Fortune Precision Equipment is employing 994% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

To the delight of most shareholders, Shenyang Fortune Precision Equipment has now broken into profitability. Given the stock has declined 44% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Shenyang Fortune Precision Equipment (of which 1 is a bit concerning!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

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