Returns On Capital At Shenzhen Longli TechnologyLtd (SZSE:300752) Have Stalled

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Shenzhen Longli TechnologyLtd's (SZSE:300752) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

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 Shenzhen Longli TechnologyLtd is:

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

0.11 = CN¥127m ÷ (CN¥1.9b - CN¥679m) (Based on the trailing twelve months to September 2024).

Therefore, Shenzhen Longli TechnologyLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 4.9% it's much better.

See our latest analysis for Shenzhen Longli TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Longli TechnologyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shenzhen Longli TechnologyLtd.

What Does the ROCE Trend For Shenzhen Longli TechnologyLtd Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 47% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Shenzhen Longli TechnologyLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Shenzhen Longli TechnologyLtd has done well to reduce current liabilities to 36% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Shenzhen Longli TechnologyLtd's ROCE

In the end, Shenzhen Longli TechnologyLtd has proven its ability to adequately reinvest capital at good rates of return. However, despite the favorable fundamentals, the stock has fallen 14% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing, we've spotted 1 warning sign facing Shenzhen Longli TechnologyLtd that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.