Shenzhen Ysstech Info-TechLtd (SZSE:300377) Will Be Hoping To Turn Its Returns On Capital Around

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into Shenzhen Ysstech Info-TechLtd (SZSE:300377), the trends above didn't look too great.

What Is 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 Shenzhen Ysstech Info-TechLtd, this is the formula:

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

0.023 = CN¥69m ÷ (CN¥3.3b - CN¥317m) (Based on the trailing twelve months to September 2023).

Thus, Shenzhen Ysstech Info-TechLtd has an ROCE of 2.3%. In absolute terms, that's a low return but it's around the Software industry average of 2.7%.

See our latest analysis for Shenzhen Ysstech Info-TechLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Ysstech Info-TechLtd'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 Ysstech Info-TechLtd.

So How Is Shenzhen Ysstech Info-TechLtd's ROCE Trending?

In terms of Shenzhen Ysstech Info-TechLtd's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 8.9% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Shenzhen Ysstech Info-TechLtd becoming one if things continue as they have.

Our Take On Shenzhen Ysstech Info-TechLtd's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 59% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know more about Shenzhen Ysstech Info-TechLtd, we've spotted 4 warning signs, and 2 of them are significant.

While Shenzhen Ysstech Info-TechLtd 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.