Eoptolink Technology (SZSE:300502) Is Looking To Continue Growing Its Returns On Capital

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Eoptolink Technology (SZSE:300502) and its trend of ROCE, we really 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 Eoptolink Technology is:

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

0.15 = CN¥786m ÷ (CN¥6.1b - CN¥769m) (Based on the trailing twelve months to December 2023).

So, Eoptolink Technology has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.4% it's much better.

Check out our latest analysis for Eoptolink Technology

Above you can see how the current ROCE for Eoptolink Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Eoptolink Technology .

How Are Returns Trending?

We like the trends that we're seeing from Eoptolink Technology. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 386%. So we're very much inspired by what we're seeing at Eoptolink Technology thanks to its ability to profitably reinvest capital.

Our Take On Eoptolink Technology's ROCE

To sum it up, Eoptolink Technology 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.

On a separate note, we've found 1 warning sign for Eoptolink Technology you'll probably want to know about.

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.