Returns Are Gaining Momentum At China Zhenhua (Group) Science & Technology (SZSE:000733)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So on that note, China Zhenhua (Group) Science & Technology (SZSE:000733) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for China Zhenhua (Group) Science & Technology:

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

0.11 = CN¥1.6b ÷ (CN¥18b - CN¥2.1b) (Based on the trailing twelve months to June 2024).

Thus, China Zhenhua (Group) Science & Technology has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.6% generated by the Electronic industry.

View our latest analysis for China Zhenhua (Group) Science & Technology

In the above chart we have measured China Zhenhua (Group) Science & 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 China Zhenhua (Group) Science & Technology .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at China Zhenhua (Group) Science & Technology are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 132%. So we're very much inspired by what we're seeing at China Zhenhua (Group) Science & Technology thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, China Zhenhua (Group) Science & Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 108% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for China Zhenhua (Group) Science & Technology you'll probably want to know about.

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.