Here's What's Concerning About Anker Innovations' (SZSE:300866) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Anker Innovations (SZSE:300866) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Anker Innovations is:

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

0.17 = CN¥1.7b ÷ (CN¥13b - CN¥3.4b) (Based on the trailing twelve months to March 2024).

So, Anker Innovations has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Tech industry average of 5.3% it's much better.

See our latest analysis for Anker Innovations

Above you can see how the current ROCE for Anker Innovations 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 Anker Innovations .

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 35% five years ago, while capital employed has grown 527%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Anker Innovations might not have received a full period of earnings contribution from it.

Our Take On Anker Innovations' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Anker Innovations. And there could be an opportunity here if other metrics look good too, because the stock has declined 41% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

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

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.

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