Queclink Wireless Solutions (SZSE:300590) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Having said that, from a first glance at Queclink Wireless Solutions (SZSE:300590) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Queclink Wireless Solutions is:

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

0.083 = CN¥153m ÷ (CN¥2.0b - CN¥142m) (Based on the trailing twelve months to September 2024).

Therefore, Queclink Wireless Solutions has an ROCE of 8.3%. On its own that's a low return, but compared to the average of 4.0% generated by the Communications industry, it's much better.

View our latest analysis for Queclink Wireless Solutions

In the above chart we have measured Queclink Wireless Solutions' 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 Queclink Wireless Solutions .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Queclink Wireless Solutions, we didn't gain much confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 8.3%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Queclink Wireless Solutions. In light of this, the stock has only gained 0.7% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you'd like to know about the risks facing Queclink Wireless Solutions, we've discovered 2 warning signs that you should be aware of.

While Queclink Wireless Solutions may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.