The Returns On Capital At Shenzhen Chuangyitong TechnologyLtd (SZSE:300991) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Shenzhen Chuangyitong TechnologyLtd (SZSE:300991) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shenzhen Chuangyitong TechnologyLtd is:

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

0.045 = CN¥37m ÷ (CN¥1.3b - CN¥525m) (Based on the trailing twelve months to March 2024).

So, Shenzhen Chuangyitong TechnologyLtd has an ROCE of 4.5%. On its own, that's a low figure but it's around the 5.3% average generated by the Electronic industry.

See our latest analysis for Shenzhen Chuangyitong 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'd like to look at how Shenzhen Chuangyitong TechnologyLtd has performed in the past in other metrics, you can view this free graph of Shenzhen Chuangyitong TechnologyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Shenzhen Chuangyitong TechnologyLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.5% from 24% five years ago. 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. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Shenzhen Chuangyitong TechnologyLtd's 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 Shenzhen Chuangyitong TechnologyLtd. And there could be an opportunity here if other metrics look good too, because the stock has declined 22% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, Shenzhen Chuangyitong TechnologyLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

While Shenzhen Chuangyitong TechnologyLtd 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.