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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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)

0.097 = CN¥2.4b ÷ (CN¥29b - CN¥4.2b) (Based on the trailing twelve months to September 2024).

Therefore, Range Intelligent Computing Technology Group has an ROCE of 9.7%. In absolute terms, that's a low return, but it's much better than the IT industry average of 3.7%.

Check out 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Range Intelligent Computing Technology Group .

What Can We Tell From Range Intelligent Computing Technology Group's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 470% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Range Intelligent Computing Technology Group has decreased current liabilities to 15% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Range Intelligent Computing Technology Group's ROCE

In summary, it's great to see that Range Intelligent Computing Technology Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 107% to shareholders over the last year, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Range Intelligent Computing Technology Group (of which 3 are a bit concerning!) that you should know about.

While Range Intelligent Computing Technology Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.