Wuhan Raycus Fiber Laser TechnologiesLtd (SZSE:300747) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Wuhan Raycus Fiber Laser TechnologiesLtd (SZSE:300747) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Wuhan Raycus Fiber Laser TechnologiesLtd:

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

0.033 = CN¥117m ÷ (CN¥5.5b - CN¥1.9b) (Based on the trailing twelve months to September 2024).

Thus, Wuhan Raycus Fiber Laser TechnologiesLtd has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.

Check out our latest analysis for Wuhan Raycus Fiber Laser TechnologiesLtd

Above you can see how the current ROCE for Wuhan Raycus Fiber Laser TechnologiesLtd 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 Wuhan Raycus Fiber Laser TechnologiesLtd .

The Trend Of ROCE

On the surface, the trend of ROCE at Wuhan Raycus Fiber Laser TechnologiesLtd doesn't inspire confidence. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like Wuhan Raycus Fiber Laser TechnologiesLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Wuhan Raycus Fiber Laser TechnologiesLtd's current liabilities have increased over the last five years to 34% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 3.3%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Key Takeaway

To conclude, we've found that Wuhan Raycus Fiber Laser TechnologiesLtd is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 36% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Wuhan Raycus Fiber Laser TechnologiesLtd has the makings of a multi-bagger.

If you want to continue researching Wuhan Raycus Fiber Laser TechnologiesLtd, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Wuhan Raycus Fiber Laser TechnologiesLtd 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.