Gettop Acoustic's (SZSE:002655) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. So on that note, Gettop Acoustic (SZSE:002655) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Gettop Acoustic, this is the formula:

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

0.048 = CN¥34m ÷ (CN¥1.3b - CN¥609m) (Based on the trailing twelve months to September 2023).

Therefore, Gettop Acoustic has an ROCE of 4.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.2%.

View our latest analysis for Gettop Acoustic

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gettop Acoustic's ROCE against it's prior returns. If you'd like to look at how Gettop Acoustic has performed in the past in other metrics, you can view this free graph of Gettop Acoustic's past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Gettop Acoustic is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.8% on its capital. Not only that, but the company is utilizing 45% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, Gettop Acoustic's current liabilities are still rather high at 46% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Gettop Acoustic's ROCE

Long story short, we're delighted to see that Gettop Acoustic's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 37% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

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

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.