Returns On Capital At Inner Mongolia OJing Science & Technology (SZSE:001269) Paint A Concerning Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Although, when we looked at Inner Mongolia OJing Science & Technology (SZSE:001269), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Inner Mongolia OJing Science & Technology:

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

0.014 = CN¥25m ÷ (CN¥2.6b - CN¥764m) (Based on the trailing twelve months to September 2024).

Thus, Inner Mongolia OJing Science & Technology has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 4.9%.

Check out our latest analysis for Inner Mongolia OJing Science & Technology

Above you can see how the current ROCE for Inner Mongolia OJing Science & Technology 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 Inner Mongolia OJing Science & Technology .

The Trend Of ROCE

When we looked at the ROCE trend at Inner Mongolia OJing Science & Technology, we didn't gain much confidence. Around five years ago the returns on capital were 22%, but since then they've fallen to 1.4%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a related note, Inner Mongolia OJing Science & Technology has decreased its current liabilities to 29% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Inner Mongolia OJing Science & Technology's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Inner Mongolia OJing Science & Technology have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 42% from where it was year ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you'd like to know about the risks facing Inner Mongolia OJing Science & Technology, we've discovered 1 warning sign that you should be aware of.

While Inner Mongolia OJing Science & Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.