Shenzhen Das Intellitech's (SZSE:002421) Returns On Capital Not Reflecting Well On The Business

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after investigating Shenzhen Das Intellitech (SZSE:002421), we don't think it's current trends fit the mold of a multi-bagger.

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. 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).

Thus, 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 3.6%.

See 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.

How Are Returns Trending?

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. Shenzhen Das Intellitech probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

What We Can Learn From 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. Investors must expect better things on the horizon though because the stock has risen 18% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you'd like to know more about Shenzhen Das Intellitech, we've spotted 3 warning signs, and 1 of them is concerning.

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.