Be Wary Of Shenzhen Forms Syntron Information (SZSE:300468) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Shenzhen Forms Syntron Information (SZSE:300468), it didn't seem to tick all of these boxes.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shenzhen Forms Syntron Information:

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

0.016 = CN¥26m ÷ (CN¥1.7b - CN¥93m) (Based on the trailing twelve months to September 2023).

Therefore, Shenzhen Forms Syntron Information has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the IT industry average of 4.4%.

See our latest analysis for Shenzhen Forms Syntron Information

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Forms Syntron Information's ROCE against it's prior returns. If you're interested in investigating Shenzhen Forms Syntron Information's past further, check out this free graph covering Shenzhen Forms Syntron Information's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Shenzhen Forms Syntron Information's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.0% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Shenzhen Forms Syntron Information's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 23% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we found 4 warning signs for Shenzhen Forms Syntron Information (1 is potentially serious) you should be aware of.

While Shenzhen Forms Syntron Information 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.