Investors Could Be Concerned With Linktel Technologies' (SZSE:301205) Returns On Capital

What trends should we look for it we want to identify stocks that can 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Linktel Technologies (SZSE:301205) and its ROCE trend, we weren't exactly thrilled.

What Is 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 Linktel Technologies, this is the formula:

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

0.04 = CN¥60m ÷ (CN¥2.1b - CN¥604m) (Based on the trailing twelve months to September 2024).

Therefore, Linktel Technologies has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.5%.

View our latest analysis for Linktel Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Linktel Technologies' ROCE against it's prior returns. If you'd like to look at how Linktel Technologies has performed in the past in other metrics, you can view this free graph of Linktel Technologies' past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at Linktel Technologies doesn't inspire confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 4.0%. 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.

The Bottom Line On Linktel Technologies' ROCE

While returns have fallen for Linktel Technologies in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 22% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One final note, you should learn about the 3 warning signs we've spotted with Linktel Technologies (including 2 which are a bit unpleasant) .

While Linktel Technologies 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.