Returns On Capital At AVIC Jonhon Optronic TechnologyLtd (SZSE:002179) Have Stalled

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of AVIC Jonhon Optronic TechnologyLtd (SZSE:002179) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for AVIC Jonhon Optronic TechnologyLtd, this is the formula:

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

0.13 = CN¥3.0b ÷ (CN¥36b - CN¥12b) (Based on the trailing twelve months to June 2024).

So, AVIC Jonhon Optronic TechnologyLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Electronic industry.

View our latest analysis for AVIC Jonhon Optronic TechnologyLtd

In the above chart we have measured AVIC Jonhon Optronic TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for AVIC Jonhon Optronic TechnologyLtd .

So How Is AVIC Jonhon Optronic TechnologyLtd's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 186% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that AVIC Jonhon Optronic TechnologyLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From AVIC Jonhon Optronic TechnologyLtd's ROCE

To sum it up, AVIC Jonhon Optronic TechnologyLtd has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 106% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, AVIC Jonhon Optronic TechnologyLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While AVIC Jonhon Optronic TechnologyLtd 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.