Returns On Capital At Zhejiang Viewshine Intelligent MeterLtd (SZSE:002849) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Zhejiang Viewshine Intelligent MeterLtd (SZSE:002849), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Zhejiang Viewshine Intelligent MeterLtd is:

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

0.065 = CN¥100m ÷ (CN¥2.4b - CN¥885m) (Based on the trailing twelve months to September 2024).

Therefore, Zhejiang Viewshine Intelligent MeterLtd has an ROCE of 6.5%. 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 Zhejiang Viewshine Intelligent MeterLtd

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'd like to look at how Zhejiang Viewshine Intelligent MeterLtd has performed in the past in other metrics, you can view this free graph of Zhejiang Viewshine Intelligent MeterLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Zhejiang Viewshine Intelligent MeterLtd Tell Us?

When we looked at the ROCE trend at Zhejiang Viewshine Intelligent MeterLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last five years. 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.

On a side note, Zhejiang Viewshine Intelligent MeterLtd has done well to pay down its current liabilities to 37% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

To conclude, we've found that Zhejiang Viewshine Intelligent MeterLtd is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 96% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Zhejiang Viewshine Intelligent MeterLtd, we've spotted 4 warning signs, and 1 of them is concerning.

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.