Shenyang Fortune Precision Equipment (SHSE:688409) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Shenyang Fortune Precision Equipment's (SHSE:688409) returns on capital, so let's have a look.

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. The formula for this calculation on Shenyang Fortune Precision Equipment is:

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

0.029 = CN¥185m ÷ (CN¥7.3b - CN¥987m) (Based on the trailing twelve months to December 2023).

Therefore, Shenyang Fortune Precision Equipment has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.0%.

View our latest analysis for Shenyang Fortune Precision Equipment

In the above chart we have measured Shenyang Fortune Precision Equipment's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Shenyang Fortune Precision Equipment .

The Trend Of ROCE

The fact that Shenyang Fortune Precision Equipment is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 2.9% which is a sight for sore eyes. Not only that, but the company is utilizing 910% more capital than before, but that's to be expected from a company 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

In summary, it's great to see that Shenyang Fortune Precision Equipment has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 48% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Shenyang Fortune Precision Equipment does have some risks though, and we've spotted 2 warning signs for Shenyang Fortune Precision Equipment that you might be interested in.

While Shenyang Fortune Precision Equipment 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.