What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, Qtone Education Group (Guangdong)Ltd (SZSE:300359) we aren't filled with optimism, but let's investigate further.

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 Qtone Education Group (Guangdong)Ltd:

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

0.0094 = CN¥7.8m ÷ (CN¥1.1b - CN¥262m) (Based on the trailing twelve months to September 2023).

So, Qtone Education Group (Guangdong)Ltd has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Software industry average of 2.9%.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Qtone Education Group (Guangdong)Ltd's past further, check out this free graph covering Qtone Education Group (Guangdong)Ltd's past earnings, revenue and cash flow.

What Can We Tell From Qtone Education Group (Guangdong)Ltd's ROCE Trend?

We are a bit anxious about the trends of ROCE at Qtone Education Group (Guangdong)Ltd. The company used to generate 4.7% on its capital five years ago but it has since fallen noticeably. What's equally concerning is that the amount of capital deployed in the business has shrunk by 63% over that same period. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Qtone Education Group (Guangdong)Ltd's ROCE

To see Qtone Education Group (Guangdong)Ltd reducing the capital employed in the business in tandem with diminishing returns, is concerning. Investors haven't taken kindly to these developments, since the stock has declined 50% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Qtone Education Group (Guangdong)Ltd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 300359 on our platform quite valuable.

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.