Shenzhen Mason TechnologiesLtd (SZSE:002654) Will Be Looking To Turn Around Its Returns

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at Shenzhen Mason TechnologiesLtd (SZSE:002654), we've spotted some signs that it could be struggling, so let's investigate.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Shenzhen Mason TechnologiesLtd, this is the formula:

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

0.0039 = CN¥8.2m ÷ (CN¥4.2b - CN¥2.1b) (Based on the trailing twelve months to March 2024).

Therefore, Shenzhen Mason TechnologiesLtd has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.3%.

View our latest analysis for Shenzhen Mason TechnologiesLtd

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shenzhen Mason TechnologiesLtd.

So How Is Shenzhen Mason TechnologiesLtd's ROCE Trending?

The trend of ROCE at Shenzhen Mason TechnologiesLtd is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 0.4% we see today. On top of that, the business is utilizing 21% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

On a separate but related note, it's important to know that Shenzhen Mason TechnologiesLtd has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Shenzhen Mason TechnologiesLtd's ROCE

In summary, it's unfortunate that Shenzhen Mason TechnologiesLtd is shrinking its capital base and also generating lower returns. Since the stock has skyrocketed 106% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to continue researching Shenzhen Mason TechnologiesLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Shenzhen Mason TechnologiesLtd 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.