Tianjin Jingwei Huikai Optoelectronic (SZSE:300120) 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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Tianjin Jingwei Huikai Optoelectronic (SZSE:300120) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Tianjin Jingwei Huikai Optoelectronic is:

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

0.0087 = CN¥30m ÷ (CN¥4.7b - CN¥1.2b) (Based on the trailing twelve months to September 2024).

Thus, Tianjin Jingwei Huikai Optoelectronic has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.5%.

See our latest analysis for Tianjin Jingwei Huikai Optoelectronic

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tianjin Jingwei Huikai Optoelectronic's ROCE against it's prior returns. If you're interested in investigating Tianjin Jingwei Huikai Optoelectronic's past further, check out this free graph covering Tianjin Jingwei Huikai Optoelectronic's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Tianjin Jingwei Huikai Optoelectronic doesn't inspire confidence. To be more specific, ROCE has fallen from 6.4% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Tianjin Jingwei Huikai Optoelectronic is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 56% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing, we've spotted 1 warning sign facing Tianjin Jingwei Huikai Optoelectronic that you might find interesting.

While Tianjin Jingwei Huikai Optoelectronic isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.