Returns On Capital At Suzhou Sushi Testing GroupLtd (SZSE:300416) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Suzhou Sushi Testing GroupLtd's (SZSE:300416) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Suzhou Sushi Testing GroupLtd:

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

0.11 = CN¥373m ÷ (CN¥4.7b - CN¥1.4b) (Based on the trailing twelve months to September 2023).

Therefore, Suzhou Sushi Testing GroupLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.5% it's much better.

Check out our latest analysis for Suzhou Sushi Testing GroupLtd

In the above chart we have measured Suzhou Sushi Testing GroupLtd's 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 Suzhou Sushi Testing GroupLtd .

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 266% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Suzhou Sushi Testing GroupLtd's ROCE

In the end, Suzhou Sushi Testing GroupLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 142% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Suzhou Sushi Testing GroupLtd does have some risks though, and we've spotted 1 warning sign for Suzhou Sushi Testing GroupLtd that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.