Investors Met With Slowing Returns on Capital At Newcapec Electronics (SZSE:300248)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Newcapec Electronics (SZSE:300248) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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 Newcapec Electronics is:

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

0.059 = CN¥130m ÷ (CN¥2.7b - CN¥454m) (Based on the trailing twelve months to September 2023).

Therefore, Newcapec Electronics has an ROCE of 5.9%. On its own, that's a low figure but it's around the 5.2% average generated by the Electronic industry.

See our latest analysis for Newcapec Electronics

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 Newcapec Electronics' past further, check out this free graph covering Newcapec Electronics' past earnings, revenue and cash flow.

So How Is Newcapec Electronics' ROCE Trending?

There are better returns on capital out there than what we're seeing at Newcapec Electronics. Over the past five years, ROCE has remained relatively flat at around 5.9% and the business has deployed 52% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Newcapec Electronics' ROCE

Long story short, while Newcapec Electronics has been reinvesting its capital, the returns that it's generating haven't increased. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, Newcapec Electronics does come with some risks, and we've found 1 warning sign that you should be aware of.

While Newcapec Electronics 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.