Zhejiang Viewshine Intelligent MeterLtd (SZSE:002849) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Zhejiang Viewshine Intelligent MeterLtd (SZSE:002849), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Zhejiang Viewshine Intelligent MeterLtd:

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

0.048 = CN¥70m ÷ (CN¥2.4b - CN¥977m) (Based on the trailing twelve months to September 2023).

Thus, Zhejiang Viewshine Intelligent MeterLtd 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 5.4%.

View 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're interested in investigating Zhejiang Viewshine Intelligent MeterLtd's past further, check out this free graph covering Zhejiang Viewshine Intelligent MeterLtd's past earnings, revenue and cash flow.

What Can We Tell From Zhejiang Viewshine Intelligent MeterLtd's ROCE Trend?

We weren't thrilled with the trend because Zhejiang Viewshine Intelligent MeterLtd's ROCE has reduced by 67% over the last five years, while the business employed 143% more capital. Usually this isn't ideal, but given Zhejiang Viewshine Intelligent MeterLtd conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Zhejiang Viewshine Intelligent MeterLtd might not have received a full period of earnings contribution from it.

The Key Takeaway

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 24% 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 want to know some of the risks facing Zhejiang Viewshine Intelligent MeterLtd we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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.