Shenzhen Easttop Supply Chain Management (SZSE:002889) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Shenzhen Easttop Supply Chain Management (SZSE:002889) 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)?

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 Shenzhen Easttop Supply Chain Management is:

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

0.074 = CN¥183m ÷ (CN¥4.3b - CN¥1.8b) (Based on the trailing twelve months to September 2024).

So, Shenzhen Easttop Supply Chain Management has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Logistics industry average of 7.5%.

Check out our latest analysis for Shenzhen Easttop Supply Chain Management

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Easttop Supply Chain Management's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shenzhen Easttop Supply Chain Management.

So How Is Shenzhen Easttop Supply Chain Management's ROCE Trending?

The returns on capital haven't changed much for Shenzhen Easttop Supply Chain Management in recent years. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 7.4%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 42% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 42%, some of that risk is still prevalent.

The Bottom Line On Shenzhen Easttop Supply Chain Management's ROCE

In conclusion, Shenzhen Easttop Supply Chain Management has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 93% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 2 warning signs for Shenzhen Easttop Supply Chain Management you'll probably want to know about.

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.