What are the early trends we should look for to identify a stock that could 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Motic (Xiamen) Electric GroupLtd (SZSE:300341) looks decent, right now, so lets see what the trend of returns can tell us.

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 Motic (Xiamen) Electric GroupLtd:

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

0.17 = CN¥309m ÷ (CN¥2.3b - CN¥457m) (Based on the trailing twelve months to June 2023).

Thus, Motic (Xiamen) Electric GroupLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Electrical industry.

See our latest analysis for Motic (Xiamen) Electric GroupLtd

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 Motic (Xiamen) Electric GroupLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Motic (Xiamen) Electric GroupLtd's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 112% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that Motic (Xiamen) Electric GroupLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Motic (Xiamen) Electric GroupLtd has done well to reduce current liabilities to 20% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Motic (Xiamen) Electric GroupLtd's ROCE

To sum it up, Motic (Xiamen) Electric GroupLtd has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 122% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we've found 1 warning sign for Motic (Xiamen) Electric GroupLtd that we think you should be aware of.

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.

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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.