Some Investors May Be Worried About Shenzhen MinDe Electronics Technology's (SZSE:300656) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Shenzhen MinDe Electronics Technology (SZSE:300656) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Shenzhen MinDe Electronics Technology:

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

0.05 = CN¥68m ÷ (CN¥1.7b - CN¥370m) (Based on the trailing twelve months to March 2024).

Therefore, Shenzhen MinDe Electronics Technology has an ROCE of 5.0%. Even though it's in line with the industry average of 5.2%, it's still a low return by itself.

See our latest analysis for Shenzhen MinDe Electronics Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Shenzhen MinDe Electronics Technology has performed in the past in other metrics, you can view this free graph of Shenzhen MinDe Electronics Technology's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Shenzhen MinDe Electronics Technology's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 5.0% from 9.4% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Shenzhen MinDe Electronics Technology's ROCE

We're a bit apprehensive about Shenzhen MinDe Electronics Technology because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 30% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know more about Shenzhen MinDe Electronics Technology, we've spotted 3 warning signs, and 1 of them is potentially serious.

While Shenzhen MinDe Electronics Technology 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.

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