Shenzhen Das Intellitech (SZSE:002421) Might Be Having Difficulty Using Its Capital Effectively

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Shenzhen Das Intellitech (SZSE:002421) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Shenzhen Das Intellitech:

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

0.0093 = CN¥58m ÷ (CN¥9.5b - CN¥3.3b) (Based on the trailing twelve months to September 2024).

So, Shenzhen Das Intellitech has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the IT industry average of 3.7%.

View our latest analysis for Shenzhen Das Intellitech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Shenzhen Das Intellitech has performed in the past in other metrics, you can view this free graph of Shenzhen Das Intellitech's past earnings, revenue and cash flow.

The Trend Of ROCE

We weren't thrilled with the trend because Shenzhen Das Intellitech's ROCE has reduced by 79% over the last five years, while the business employed 42% more capital. That being said, Shenzhen Das Intellitech raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Shenzhen Das Intellitech's earnings and if they change as a result from the capital raise.

The Bottom Line On Shenzhen Das Intellitech's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Shenzhen Das Intellitech have fallen, meanwhile the business is employing more capital than it was five years ago. Despite the concerning underlying trends, the stock has actually gained 11% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Shenzhen Das Intellitech (of which 1 is concerning!) that you should know about.

While Shenzhen Das Intellitech 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.