Zhuzhou CRRC Times Electric (HKG:3898) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Zhuzhou CRRC Times Electric (HKG:3898) and its ROCE trend, we weren't exactly thrilled.

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Understanding 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. The formula for this calculation on Zhuzhou CRRC Times Electric is:

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

0.08 = CN¥3.7b ÷ (CN¥66b - CN¥21b) (Based on the trailing twelve months to March 2025).

So, Zhuzhou CRRC Times Electric has an ROCE of 8.0%. Even though it's in line with the industry average of 7.9%, it's still a low return by itself.

See our latest analysis for Zhuzhou CRRC Times Electric

Above you can see how the current ROCE for Zhuzhou CRRC Times Electric compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Zhuzhou CRRC Times Electric for free.

The Trend Of ROCE

In terms of Zhuzhou CRRC Times Electric's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.0% from 10% five years ago. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Zhuzhou CRRC Times Electric's ROCE

While returns have fallen for Zhuzhou CRRC Times Electric in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 70% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Like most companies, Zhuzhou CRRC Times Electric does come with some risks, and we've found 1 warning sign that you should be aware of.

While Zhuzhou CRRC Times Electric 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.