Shenzhen Newway Photomask Making (SHSE:688401) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Shenzhen Newway Photomask Making's (SHSE:688401) returns on capital, so let's have a look.

What Is 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. The formula for this calculation on Shenzhen Newway Photomask Making is:

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

0.084 = CN¥160m ÷ (CN¥2.2b - CN¥303m) (Based on the trailing twelve months to March 2024).

So, Shenzhen Newway Photomask Making has an ROCE of 8.4%. In absolute terms, that's a low return, but it's much better than the Electronic industry average of 5.2%.

See our latest analysis for Shenzhen Newway Photomask Making

Above you can see how the current ROCE for Shenzhen Newway Photomask Making compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Shenzhen Newway Photomask Making .

What Does the ROCE Trend For Shenzhen Newway Photomask Making Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 219% more capital is being employed now too. So we're very much inspired by what we're seeing at Shenzhen Newway Photomask Making thanks to its ability to profitably reinvest capital.

One more thing to note, Shenzhen Newway Photomask Making has decreased current liabilities to 14% 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.

The Bottom Line On Shenzhen Newway Photomask Making's ROCE

To sum it up, Shenzhen Newway Photomask Making has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 32% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Shenzhen Newway Photomask Making you'll probably want to know about.

While Shenzhen Newway Photomask Making 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.