There Are Reasons To Feel Uneasy About Zhejiang Viewshine Intelligent MeterLtd's (SZSE:002849) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after briefly looking over the numbers, we don't think Zhejiang Viewshine Intelligent MeterLtd (SZSE:002849) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. 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)

0.078 = CN¥115m ÷ (CN¥2.4b - CN¥920m) (Based on the trailing twelve months to June 2024).

So, Zhejiang Viewshine Intelligent MeterLtd has an ROCE of 7.8%. On its own that's a low return, but compared to the average of 5.4% generated by the Electronic industry, it's much better.

See 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?

In terms of Zhejiang Viewshine Intelligent MeterLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.8% from 16% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Zhejiang Viewshine Intelligent MeterLtd's ROCE

While returns have fallen for Zhejiang Viewshine Intelligent MeterLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 19% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you'd like to know more about Zhejiang Viewshine Intelligent MeterLtd, we've spotted 3 warning signs, and 1 of them is significant.

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.