Returns On Capital Are A Standout For Sharetronic Data Technology (SZSE:300857)

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of Sharetronic Data Technology (SZSE:300857) looks great, so lets see what the trend can tell us.

Understanding 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. To calculate this metric for Sharetronic Data Technology, this is the formula:

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

0.23 = CN¥753m ÷ (CN¥6.5b - CN¥3.2b) (Based on the trailing twelve months to September 2024).

Thus, Sharetronic Data Technology has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 5.7% earned by companies in a similar industry.

See our latest analysis for Sharetronic Data Technology

In the above chart we have measured Sharetronic Data Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Sharetronic Data Technology for free.

The Trend Of ROCE

The trends we've noticed at Sharetronic Data Technology are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 355%. So we're very much inspired by what we're seeing at Sharetronic Data Technology thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 49% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

Our Take On Sharetronic Data Technology's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sharetronic Data Technology has. And a remarkable 216% total return over the last three years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Sharetronic Data Technology (1 can't be ignored) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.