We Like These Underlying Return On Capital Trends At Wuhan Fingu Electronic Technology (SZSE:002194)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Wuhan Fingu Electronic Technology (SZSE:002194) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Wuhan Fingu Electronic Technology:

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

0.0051 = CN¥14m ÷ (CN¥3.0b - CN¥340m) (Based on the trailing twelve months to March 2024).

Therefore, Wuhan Fingu Electronic Technology has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 3.9%.

Check out our latest analysis for Wuhan Fingu Electronic Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wuhan Fingu Electronic Technology's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Wuhan Fingu Electronic Technology.

What Does the ROCE Trend For Wuhan Fingu Electronic Technology Tell Us?

We're delighted to see that Wuhan Fingu Electronic Technology is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.5% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Wuhan Fingu Electronic Technology is utilizing 59% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

Overall, Wuhan Fingu Electronic Technology gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 37% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Wuhan Fingu Electronic Technology we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

While Wuhan Fingu Electronic Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.