The Returns On Capital At Techshine ElectronicsLtd (SZSE:301379) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Techshine ElectronicsLtd (SZSE:301379) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Techshine ElectronicsLtd is:

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

0.059 = CN¥79m ÷ (CN¥1.7b - CN¥386m) (Based on the trailing twelve months to June 2024).

Thus, Techshine ElectronicsLtd has an ROCE of 5.9%. On its own, that's a low figure but it's around the 5.4% average generated by the Electronic industry.

View our latest analysis for Techshine ElectronicsLtd

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

The Trend Of ROCE

When we looked at the ROCE trend at Techshine ElectronicsLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like Techshine ElectronicsLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Techshine ElectronicsLtd has done well to pay down its current liabilities to 22% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Techshine ElectronicsLtd's ROCE

In summary, Techshine ElectronicsLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 22% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we've found 2 warning signs for Techshine ElectronicsLtd that we think you should be aware of.

While Techshine ElectronicsLtd 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.