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

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. And from a first read, things don't look too good at Shenzhen Ysstech Info-TechLtd (SZSE:300377), so let's see why.

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 Ysstech Info-TechLtd:

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

0.026 = CN¥77m ÷ (CN¥3.2b - CN¥261m) (Based on the trailing twelve months to June 2024).

Thus, Shenzhen Ysstech Info-TechLtd has an ROCE of 2.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 2.9%.

See our latest analysis for Shenzhen Ysstech Info-TechLtd

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 Ysstech Info-TechLtd has performed in the past in other metrics, you can view this free graph of Shenzhen Ysstech Info-TechLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Shenzhen Ysstech Info-TechLtd's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 6.0% 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. 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.

What We Can Learn From 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. In spite of that, the stock has delivered a 15% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Shenzhen Ysstech Info-TechLtd does have some risks, we noticed 3 warning signs (and 2 which are potentially serious) we think you should know about.

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.

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

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.