Returns On Capital Are Showing Encouraging Signs At Greenland Technologies Holding (NASDAQ:GTEC)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Greenland Technologies Holding's (NASDAQ:GTEC) returns on capital, so let's have a look.

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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. The formula for this calculation on Greenland Technologies Holding is:

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

0.14 = US$9.2m ÷ (US$124m - US$56m) (Based on the trailing twelve months to June 2025).

Therefore, Greenland Technologies Holding has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Machinery industry average of 12%.

See our latest analysis for Greenland Technologies Holding

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

What Can We Tell From Greenland Technologies Holding's ROCE Trend?

The trends we've noticed at Greenland Technologies Holding are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% more capital is being employed now too. 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 46%. 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 On Greenland Technologies Holding's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Greenland Technologies Holding has. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One final note, you should learn about the 3 warning signs we've spotted with Greenland Technologies Holding (including 1 which is concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.