Tianjin Printronics Circuit's (SZSE:002134) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Tianjin Printronics Circuit (SZSE:002134) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Tianjin Printronics Circuit, this is the formula:

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

0.07 = CN¥36m ÷ (CN¥796m - CN¥280m) (Based on the trailing twelve months to September 2023).

So, Tianjin Printronics Circuit has an ROCE of 7.0%. In absolute terms, that's a low return, but it's much better than the Electronic industry average of 5.4%.

Check out our latest analysis for Tianjin Printronics Circuit

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tianjin Printronics Circuit's ROCE against it's prior returns. If you're interested in investigating Tianjin Printronics Circuit's past further, check out this free graph covering Tianjin Printronics Circuit's past earnings, revenue and cash flow.

The Trend Of ROCE

Tianjin Printronics Circuit has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 7.0%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

In Conclusion...

In summary, we're delighted to see that Tianjin Printronics Circuit has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 17% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 1 warning sign for Tianjin Printronics Circuit that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.