Returns On Capital At Dongguan Tarry ElectronicsLtd (SZSE:300976) Paint A Concerning Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Dongguan Tarry ElectronicsLtd (SZSE:300976) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Dongguan Tarry ElectronicsLtd is:

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

0.059 = CN¥200m ÷ (CN¥4.0b - CN¥664m) (Based on the trailing twelve months to September 2024).

So, Dongguan Tarry ElectronicsLtd has an ROCE of 5.9%. Even though it's in line with the industry average of 5.8%, it's still a low return by itself.

View our latest analysis for Dongguan Tarry ElectronicsLtd

Above you can see how the current ROCE for Dongguan Tarry ElectronicsLtd 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 Dongguan Tarry ElectronicsLtd .

What Does the ROCE Trend For Dongguan Tarry ElectronicsLtd Tell Us?

When we looked at the ROCE trend at Dongguan Tarry ElectronicsLtd, we didn't gain much confidence. Around five years ago the returns on capital were 41%, but since then they've fallen to 5.9%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Dongguan Tarry ElectronicsLtd is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 15% over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you're still interested in Dongguan Tarry ElectronicsLtd it's worth checking out our FREE intrinsic value approximation for 300976 to see if it's trading at an attractive price in other respects.

While Dongguan Tarry ElectronicsLtd 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.