If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Longmaster Information & Technology (SZSE:300288), we weren't too hopeful.
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 Longmaster Information & Technology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = CN¥63m ÷ (CN¥2.0b - CN¥293m) (Based on the trailing twelve months to September 2023).
So, Longmaster Information & Technology has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Healthcare Services industry average of 8.8%.
View our latest analysis for Longmaster Information & Technology
Historical performance is a great place to start when researching a stock so above you can see the gauge for Longmaster Information & Technology's ROCE against it's prior returns. If you'd like to look at how Longmaster Information & Technology has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Longmaster Information & Technology's ROCE Trending?
There is reason to be cautious about Longmaster Information & Technology, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 5.1% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Longmaster Information & Technology becoming one if things continue as they have.
In Conclusion...
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 21% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.
If you want to continue researching Longmaster Information & Technology, you might be interested to know about the 2 warning signs that our analysis has discovered.
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.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
歷史表現是研究股票的絕佳起點,因此在上方您可以看到Longmaster信息與技術公司的投資回報率與先前回報對比的指標。如果你想在其他指標中查看Longmaster Information & Technology過去的表現,你可以查看這張過去的收益、收入和現金流的免費圖表。
那麼 Longmaster 信息與科技的投資回報率趨勢如何呢?
鑑於回報率呈下降趨勢,有理由對Longmaster信息與技術保持謹慎態度。不幸的是,資本回報率已從五年前的5.1%有所下降。最重要的是,值得注意的是,企業內部使用的資本量一直保持相對穩定。表現出這些屬性的公司往往不會萎縮,但它們可能已經成熟,面臨競爭對利潤的壓力。因此,由於這些趨勢通常不利於創建多袋機,因此,如果一切照原樣,我們就不會屏住呼吸等待Longmaster Information & Technology成爲一體。