Investors Shouldn't Overlook Suzhou TFC Optical Communication's (SZSE:300394) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at the ROCE trend of Suzhou TFC Optical Communication (SZSE:300394) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Suzhou TFC Optical Communication:

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

0.29 = CN¥856m ÷ (CN¥3.3b - CN¥362m) (Based on the trailing twelve months to December 2023).

Therefore, Suzhou TFC Optical Communication has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 5.1% earned by companies in a similar industry.

View our latest analysis for Suzhou TFC Optical Communication

In the above chart we have measured Suzhou TFC Optical Communication's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Suzhou TFC Optical Communication for free.

What Can We Tell From Suzhou TFC Optical Communication's ROCE Trend?

The trends we've noticed at Suzhou TFC Optical Communication are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 186% more capital is being employed now too. So we're very much inspired by what we're seeing at Suzhou TFC Optical Communication thanks to its ability to profitably reinvest capital.

The Bottom Line On Suzhou TFC Optical Communication's ROCE

In summary, it's great to see that Suzhou TFC Optical Communication can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 798% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Suzhou TFC Optical Communication that you might find interesting.

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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.