Beijing Yuanliu Hongyuan Electronic Technology's (SHSE:603267) Returns On Capital Not Reflecting Well On The Business

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Beijing Yuanliu Hongyuan Electronic Technology (SHSE:603267), it didn't seem to tick all of these boxes.

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 Beijing Yuanliu Hongyuan Electronic Technology:

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

0.06 = CN¥259m ÷ (CN¥5.2b - CN¥873m) (Based on the trailing twelve months to March 2024).

So, Beijing Yuanliu Hongyuan Electronic Technology has an ROCE of 6.0%. In absolute terms, that's a low return but it's around the Electronic industry average of 5.2%.

See our latest analysis for Beijing Yuanliu Hongyuan Electronic Technology

In the above chart we have measured Beijing Yuanliu Hongyuan Electronic Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Beijing Yuanliu Hongyuan Electronic Technology .

How Are Returns Trending?

In terms of Beijing Yuanliu Hongyuan Electronic Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 25% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Beijing Yuanliu Hongyuan Electronic Technology's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Beijing Yuanliu Hongyuan Electronic Technology have fallen, meanwhile the business is employing more capital than it was five years ago. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 2 warning signs facing Beijing Yuanliu Hongyuan Electronic Technology that you might find interesting.

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.

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