The Return Trends At Guangxi Oriental Intelligent Manufacturing Technology (SZSE:002175) Look Promising

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Guangxi Oriental Intelligent Manufacturing Technology (SZSE:002175) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Guangxi Oriental Intelligent Manufacturing Technology is:

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

0.0047 = CN¥2.9m ÷ (CN¥691m - CN¥64m) (Based on the trailing twelve months to September 2023).

Thus, Guangxi Oriental Intelligent Manufacturing Technology has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.2%.

View 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'd like to look at how Guangxi Oriental Intelligent Manufacturing Technology has performed in the past in other metrics, you can view this free graph of Guangxi Oriental Intelligent Manufacturing Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Guangxi Oriental Intelligent Manufacturing Technology Tell Us?

It's great to see that Guangxi Oriental Intelligent Manufacturing Technology has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 0.5% on their capital employed. Additionally, the business is utilizing 50% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

On a related note, the company's ratio of current liabilities to total assets has decreased to 9.3%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Guangxi Oriental Intelligent Manufacturing Technology has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

In a nutshell, we're pleased to see that Guangxi Oriental Intelligent Manufacturing Technology has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 57% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Guangxi Oriental Intelligent Manufacturing Technology does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.