Suntak TechnologyLtd (SZSE:002815) Might Be Having Difficulty Using Its Capital Effectively

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Suntak TechnologyLtd (SZSE:002815) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Suntak TechnologyLtd:

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

0.046 = CN¥440m ÷ (CN¥12b - CN¥2.7b) (Based on the trailing twelve months to September 2024).

Therefore, Suntak TechnologyLtd has an ROCE of 4.6%. On its own, that's a low figure but it's around the 5.5% average generated by the Electronic industry.

Check out our latest analysis for Suntak TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Suntak TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Suntak TechnologyLtd's past further, check out this free graph covering Suntak TechnologyLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Suntak TechnologyLtd Tell Us?

On the surface, the trend of ROCE at Suntak TechnologyLtd doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 4.6%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that Suntak TechnologyLtd is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 35% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Suntak TechnologyLtd (including 1 which makes us a bit uncomfortable) .

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.