Wuhu Token Sciences (SZSE:300088) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Wuhu Token Sciences (SZSE:300088), we don't think it's current trends fit the mold of a multi-bagger.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Wuhu Token Sciences:

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

0.039 = CN¥374m ÷ (CN¥14b - CN¥4.7b) (Based on the trailing twelve months to September 2023).

So, Wuhu Token Sciences has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.2%.

View our latest analysis for Wuhu Token Sciences

In the above chart we have measured Wuhu Token Sciences' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wuhu Token Sciences .

What Does the ROCE Trend For Wuhu Token Sciences Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 18% five years ago, while the business's capital employed increased by 86%. Usually this isn't ideal, but given Wuhu Token Sciences conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Wuhu Token Sciences probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

Our Take On Wuhu Token Sciences' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Wuhu Token Sciences. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we've found 2 warning signs for Wuhu Token Sciences that we think you should be aware of.

While Wuhu Token Sciences 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.