Shenzhen iN-Cube Automation (SZSE:301312) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Shenzhen iN-Cube Automation (SZSE:301312) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Shenzhen iN-Cube Automation:

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

0.0037 = CN¥4.3m ÷ (CN¥1.3b - CN¥147m) (Based on the trailing twelve months to March 2024).

Thus, Shenzhen iN-Cube Automation has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.2%.

See our latest analysis for Shenzhen iN-Cube Automation

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shenzhen iN-Cube Automation.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Shenzhen iN-Cube Automation doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.4% from 41% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Shenzhen iN-Cube Automation's ROCE

In summary, we're somewhat concerned by Shenzhen iN-Cube Automation's diminishing returns on increasing amounts of capital. It should come as no surprise then that the stock has fallen 47% over the last year, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing: We've identified 5 warning signs with Shenzhen iN-Cube Automation (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

While Shenzhen iN-Cube Automation isn't earning the highest return, check out this free list of companies that are 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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