Here's What To Make Of China Leadshine Technology's (SZSE:002979) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. That's why when we briefly looked at China Leadshine Technology's (SZSE:002979) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

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 China Leadshine Technology:

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

0.12 = CN¥198m ÷ (CN¥2.3b - CN¥598m) (Based on the trailing twelve months to September 2024).

Therefore, China Leadshine Technology has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.6% it's much better.

Check out our latest analysis for China Leadshine Technology

Above you can see how the current ROCE for China Leadshine Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering China Leadshine Technology for free.

What Does the ROCE Trend For China Leadshine Technology Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 180% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, China Leadshine Technology has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 127% return to those who've held over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

China Leadshine Technology does have some risks though, and we've spotted 1 warning sign for China Leadshine Technology that you might be interested in.

While China Leadshine Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.