Returns At Nanjing Sciyon Wisdom Technology Group (SZSE:002380) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Nanjing Sciyon Wisdom Technology Group (SZSE:002380) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Nanjing Sciyon Wisdom Technology Group, this is the formula:

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

0.086 = CN¥178m ÷ (CN¥3.4b - CN¥1.4b) (Based on the trailing twelve months to June 2024).

Thus, Nanjing Sciyon Wisdom Technology Group has an ROCE of 8.6%. On its own that's a low return, but compared to the average of 2.8% generated by the Software industry, it's much better.

Check out our latest analysis for Nanjing Sciyon Wisdom Technology Group

Above you can see how the current ROCE for Nanjing Sciyon Wisdom Technology Group 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 Nanjing Sciyon Wisdom Technology Group .

What Can We Tell From Nanjing Sciyon Wisdom Technology Group's ROCE Trend?

Nanjing Sciyon Wisdom Technology Group has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 67% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 39% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

What We Can Learn From Nanjing Sciyon Wisdom Technology Group's ROCE

To bring it all together, Nanjing Sciyon Wisdom Technology Group has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 34% to shareholders. So with that in mind, we think the stock deserves further research.

While Nanjing Sciyon Wisdom Technology Group looks impressive, no company is worth an infinite price. The intrinsic value infographic for 002380 helps visualize whether it is currently trading for a fair price.

While Nanjing Sciyon Wisdom Technology Group 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.