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Some Investors May Be Worried About Suzhou Chunqiu Electronic Technology's (SHSE:603890) Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 Suzhou Chunqiu Electronic Technology (SHSE:603890), we don't think it's current trends fit the mold of a multi-bagger.
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. Analysts use this formula to calculate it for Suzhou Chunqiu Electronic Technology:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = CN¥156m ÷ (CN¥6.0b - CN¥2.3b) (Based on the trailing twelve months to September 2024).
So, Suzhou Chunqiu Electronic Technology has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.
See our latest analysis for Suzhou Chunqiu Electronic Technology
Historical performance is a great place to start when researching a stock so above you can see the gauge for Suzhou Chunqiu Electronic Technology's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Suzhou Chunqiu Electronic Technology.
The Trend Of ROCE
On the surface, the trend of ROCE at Suzhou Chunqiu Electronic Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 7.9% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
What We Can Learn From Suzhou Chunqiu Electronic Technology's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Suzhou Chunqiu Electronic Technology is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 74% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.
Suzhou Chunqiu Electronic Technology does have some risks though, and we've spotted 1 warning sign for Suzhou Chunqiu Electronic Technology that you might be interested in.
While Suzhou Chunqiu Electronic Technology 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.
About SHSE:603890
Suzhou Chunqiu Electronic Technology
Suzhou Chunqiu Electronic Technology Co., Ltd.
Excellent balance sheet and slightly overvalued.