Returns On Capital Are A Standout For Suzhou TFC Optical Communication (SZSE:300394)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, the ROCE of Suzhou TFC Optical Communication (SZSE:300394) looks great, so lets see what the trend can tell us.

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What Is 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)

0.35 = CN¥1.4b ÷ (CN¥4.7b - CN¥760m) (Based on the trailing twelve months to September 2024).

Therefore, Suzhou TFC Optical Communication has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 4.0% earned by companies in a similar industry.

See 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.

So How Is Suzhou TFC Optical Communication's ROCE Trending?

The trends we've noticed at Suzhou TFC Optical Communication are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. The amount of capital employed has increased too, by 239%. 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 Key Takeaway

To sum it up, Suzhou TFC Optical Communication has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Suzhou TFC Optical Communication does come with some risks, and we've found 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.