Range Intelligent Computing Technology Group (SZSE:300442) Is Experiencing Growth In Returns On Capital

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'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. Speaking of which, we noticed some great changes in Range Intelligent Computing Technology Group's (SZSE:300442) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Range Intelligent Computing Technology Group is:

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

0.091 = CN¥2.0b ÷ (CN¥26b - CN¥4.3b) (Based on the trailing twelve months to March 2024).

Thus, Range Intelligent Computing Technology Group has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the IT industry average of 3.9%.

View our latest analysis for Range Intelligent Computing Technology Group

Above you can see how the current ROCE for Range Intelligent Computing 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, you can check out the forecasts from the analysts covering Range Intelligent Computing Technology Group for free.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.1%. The amount of capital employed has increased too, by 486%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 16%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Range Intelligent Computing Technology Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Range Intelligent Computing Technology Group's ROCE

To sum it up, Range Intelligent Computing Technology Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 15% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Range Intelligent Computing Technology Group does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

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.