Sihui Fuji Electronics Technology (SZSE:300852) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Sihui Fuji Electronics Technology (SZSE:300852) and its ROCE trend, we weren't exactly thrilled.

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 Sihui Fuji Electronics Technology is:

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

0.092 = CN¥198m ÷ (CN¥2.6b - CN¥446m) (Based on the trailing twelve months to September 2024).

Thus, Sihui Fuji Electronics Technology has an ROCE of 9.2%. On its own that's a low return, but compared to the average of 5.6% generated by the Electronic industry, it's much better.

See our latest analysis for Sihui Fuji 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 Sihui Fuji Electronics Technology has performed in the past in other metrics, you can view this free graph of Sihui Fuji Electronics Technology's past earnings, revenue and cash flow.

So How Is Sihui Fuji Electronics Technology's ROCE Trending?

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. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

Our Take On Sihui Fuji Electronics Technology's ROCE

In summary, Sihui Fuji Electronics Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 30% over the last three years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 3 warning signs we've spotted with Sihui Fuji Electronics Technology (including 1 which can't be ignored) .

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.