The Returns On Capital At OPT Machine Vision Tech (SHSE:688686) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at OPT Machine Vision Tech (SHSE:688686) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 OPT Machine Vision Tech is:

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

0.048 = CN¥140m ÷ (CN¥3.2b - CN¥220m) (Based on the trailing twelve months to March 2024).

So, OPT Machine Vision Tech has an ROCE of 4.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.2%.

Check out our latest analysis for OPT Machine Vision Tech

Above you can see how the current ROCE for OPT Machine Vision Tech compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering OPT Machine Vision Tech for free.

How Are Returns Trending?

When we looked at the ROCE trend at OPT Machine Vision Tech, we didn't gain much confidence. Around five years ago the returns on capital were 42%, but since then they've fallen to 4.8%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for OPT Machine Vision Tech have fallen, meanwhile the business is employing more capital than it was five years ago. We expect this has contributed to the stock plummeting 72% during the last three years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we've found 1 warning sign for OPT Machine Vision Tech that we think you should be aware of.

While OPT Machine Vision Tech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.