Returns On Capital Are Showing Encouraging Signs At Guangxi Oriental Intelligent Manufacturing Technology (SZSE:002175)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Guangxi Oriental Intelligent Manufacturing Technology (SZSE:002175) looks quite promising in regards to its trends of return on capital.

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 Guangxi Oriental Intelligent Manufacturing Technology:

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

0.039 = CN¥26m ÷ (CN¥808m - CN¥147m) (Based on the trailing twelve months to September 2024).

So, Guangxi Oriental Intelligent Manufacturing Technology has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.

See our latest analysis for Guangxi Oriental Intelligent Manufacturing Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Guangxi Oriental Intelligent Manufacturing Technology's past further, check out this free graph covering Guangxi Oriental Intelligent Manufacturing Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Guangxi Oriental Intelligent Manufacturing Technology is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 3.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Guangxi Oriental Intelligent Manufacturing Technology is utilizing 122% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Guangxi Oriental Intelligent Manufacturing Technology has decreased current liabilities to 18% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Guangxi Oriental Intelligent Manufacturing Technology's ROCE

Long story short, we're delighted to see that Guangxi Oriental Intelligent Manufacturing Technology's reinvestment activities have paid off and the company is now profitable. 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. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Guangxi Oriental Intelligent Manufacturing Technology we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Guangxi Oriental Intelligent Manufacturing 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.