Greenland Technologies Holding (NASDAQ:GTEC) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Greenland Technologies Holding (NASDAQ:GTEC) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Greenland Technologies Holding:

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

0.16 = US$11m ÷ (US$158m - US$89m) (Based on the trailing twelve months to September 2021).

Therefore, Greenland Technologies Holding has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 10% it's much better.

Check out our latest analysis for Greenland Technologies Holding

Above you can see how the current ROCE for Greenland Technologies Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Investors would be pleased with what's happening at Greenland Technologies Holding. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 45%. So we're very much inspired by what we're seeing at Greenland Technologies Holding thanks to its ability to profitably reinvest capital.

Another thing to note, Greenland Technologies Holding has a high ratio of current liabilities to total assets of 57%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

All in all, it's terrific to see that Greenland Technologies Holding is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 25% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Greenland Technologies Holding does have some risks, we noticed 5 warning signs (and 2 which can't be ignored) we think you should know about.

While Greenland Technologies Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.