We Like Wuxi Autowell TechnologyLtd's (SHSE:688516) Returns And Here's How They're Trending

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of Wuxi Autowell TechnologyLtd (SHSE:688516) looks great, so lets see what the trend can tell us.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Wuxi Autowell TechnologyLtd:

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

0.27 = CN¥1.6b ÷ (CN¥15b - CN¥8.5b) (Based on the trailing twelve months to December 2024).

Thus, Wuxi Autowell TechnologyLtd has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 5.9% earned by companies in a similar industry.

Check out our latest analysis for Wuxi Autowell TechnologyLtd

Above you can see how the current ROCE for Wuxi Autowell TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wuxi Autowell TechnologyLtd .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Wuxi Autowell TechnologyLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 1,298%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Wuxi Autowell TechnologyLtd has a current liabilities to total assets ratio of 58%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Wuxi Autowell TechnologyLtd's ROCE

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 Wuxi Autowell TechnologyLtd has. Astute investors may have an opportunity here because the stock has declined 37% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Wuxi Autowell TechnologyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

Wuxi Autowell TechnologyLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.