Slowing Rates Of Return At Suzhou Sushi Testing GroupLtd (SZSE:300416) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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 ran our eye over Suzhou Sushi Testing GroupLtd's (SZSE:300416) trend of ROCE, we liked what we saw.

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 Suzhou Sushi Testing GroupLtd is:

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

0.11 = CN¥380m ÷ (CN¥4.8b - CN¥1.3b) (Based on the trailing twelve months to March 2024).

Thus, Suzhou Sushi Testing GroupLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Electronic industry.

View 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, you can check out the forecasts from the analysts covering Suzhou Sushi Testing GroupLtd for free.

What Can We Tell From Suzhou Sushi Testing GroupLtd's ROCE Trend?

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 294% 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.

The Bottom Line

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 104% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 1 warning sign for Suzhou Sushi Testing GroupLtd you'll probably want to know about.

While Suzhou Sushi Testing GroupLtd 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.