Returns On Capital Signal Tricky Times Ahead For Sihui Fuji Electronics Technology (SZSE:300852)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Sihui Fuji Electronics Technology (SZSE:300852), it didn't seem to tick all of these boxes.

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

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 Sihui Fuji Electronics Technology:

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

0.10 = CN¥213m ÷ (CN¥2.5b - CN¥407m) (Based on the trailing twelve months to June 2024).

Therefore, Sihui Fuji Electronics Technology has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Electronic industry.

Check out our latest analysis for Sihui Fuji Electronics Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sihui Fuji Electronics Technology's ROCE against it's prior returns. If you're interested in investigating Sihui Fuji Electronics Technology's past further, check out this free graph covering Sihui Fuji Electronics Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Sihui Fuji Electronics Technology Tell Us?

In terms of Sihui Fuji Electronics Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 24% over the last five years. However it looks like Sihui Fuji Electronics Technology 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.

The Bottom Line

To conclude, we've found that Sihui Fuji Electronics Technology is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 25% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Like most companies, Sihui Fuji Electronics Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

While Sihui Fuji Electronics 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.