A Look Into Zhejiang Wellsun Intelligent TechnologyLtd's (SZSE:300882) Impressive Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Zhejiang Wellsun Intelligent TechnologyLtd (SZSE:300882) looks attractive right now, so lets see what the trend of returns can tell us.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Zhejiang Wellsun Intelligent TechnologyLtd:

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

0.22 = CN¥271m ÷ (CN¥1.6b - CN¥373m) (Based on the trailing twelve months to March 2024).

Therefore, Zhejiang Wellsun Intelligent TechnologyLtd has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 5.2% earned by companies in a similar industry.

See our latest analysis for Zhejiang Wellsun Intelligent TechnologyLtd

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're interested in investigating Zhejiang Wellsun Intelligent TechnologyLtd's past further, check out this free graph covering Zhejiang Wellsun Intelligent TechnologyLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Zhejiang Wellsun Intelligent TechnologyLtd Tell Us?

It's hard not to be impressed by Zhejiang Wellsun Intelligent TechnologyLtd's returns on capital. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 273% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Zhejiang Wellsun Intelligent TechnologyLtd has done well to reduce current liabilities to 23% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

Zhejiang Wellsun Intelligent TechnologyLtd has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Zhejiang Wellsun Intelligent TechnologyLtd does have some risks though, and we've spotted 2 warning signs for Zhejiang Wellsun Intelligent TechnologyLtd that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.

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