Fujian Apex SoftwareLTD (SHSE:603383) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Fujian Apex SoftwareLTD (SHSE:603383) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Fujian Apex SoftwareLTD, this is the formula:

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

0.14 = CN¥216m ÷ (CN¥1.8b - CN¥271m) (Based on the trailing twelve months to March 2024).

So, Fujian Apex SoftwareLTD has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 3.0% it's much better.

Check out our latest analysis for Fujian Apex SoftwareLTD

In the above chart we have measured Fujian Apex SoftwareLTD'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 Fujian Apex SoftwareLTD .

So How Is Fujian Apex SoftwareLTD's ROCE Trending?

Investors would be pleased with what's happening at Fujian Apex SoftwareLTD. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. So we're very much inspired by what we're seeing at Fujian Apex SoftwareLTD thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Fujian Apex SoftwareLTD has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 25% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 2 warning signs with Fujian Apex SoftwareLTD and understanding these should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com