Investors Met With Slowing Returns on Capital At Yusys Technologies (SZSE:300674)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Yusys Technologies (SZSE:300674), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Yusys Technologies is:

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

0.083 = CN¥345m ÷ (CN¥5.4b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

Thus, Yusys Technologies has an ROCE of 8.3%. In absolute terms, that's a low return, but it's much better than the IT industry average of 3.8%.

Check out our latest analysis for Yusys Technologies

In the above chart we have measured Yusys Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Yusys Technologies .

What Does the ROCE Trend For Yusys Technologies Tell Us?

The returns on capital haven't changed much for Yusys Technologies in recent years. The company has employed 100% more capital in the last five years, and the returns on that capital have remained stable at 8.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 23% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Yusys Technologies' ROCE

In conclusion, Yusys Technologies has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 66% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Yusys Technologies does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

While Yusys Technologies 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.