Wanma Technology (SZSE:300698) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Wanma Technology's (SZSE:300698) returns on capital, so let's have a look.

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

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. The formula for this calculation on Wanma Technology is:

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

0.13 = CN¥62m ÷ (CN¥873m - CN¥401m) (Based on the trailing twelve months to September 2023).

Therefore, Wanma Technology has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 5.2% it's much better.

View our latest analysis for Wanma 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Wanma Technology.

How Are Returns Trending?

Wanma Technology has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 13% on its capital. Not only that, but the company is utilizing 23% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Another thing to note, Wanma Technology has a high ratio of current liabilities to total assets of 46%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Wanma Technology's ROCE

To the delight of most shareholders, Wanma Technology has now broken into profitability. And with a respectable 66% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Wanma Technology can keep these trends up, it could have a bright future ahead.

Wanma Technology does have some risks though, and we've spotted 1 warning sign for Wanma Technology that you might be interested in.

While Wanma Technology 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.