Returns On Capital Signal Tricky Times Ahead For Wuxi Online Offline Communication Information Technology (SZSE:300959)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Wuxi Online Offline Communication Information Technology (SZSE:300959) 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)?

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 Wuxi Online Offline Communication Information Technology:

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

0.019 = CN¥23m ÷ (CN¥1.3b - CN¥156m) (Based on the trailing twelve months to September 2023).

So, Wuxi Online Offline Communication Information Technology has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 10%.

See our latest analysis for Wuxi Online Offline Communication Information Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wuxi Online Offline Communication Information Technology's ROCE against it's prior returns. If you're interested in investigating Wuxi Online Offline Communication Information Technology's past further, check out this free graph covering Wuxi Online Offline Communication Information Technology's past earnings, revenue and cash flow.

What Can We Tell From Wuxi Online Offline Communication Information Technology's ROCE Trend?

In terms of Wuxi Online Offline Communication Information Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 38% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Wuxi Online Offline Communication Information Technology's ROCE

To conclude, we've found that Wuxi Online Offline Communication Information Technology is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last year has been flat. 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.

Wuxi Online Offline Communication Information Technology does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is concerning...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.