Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of Guangdong Tecsun Science & TechnologyLtd (SZSE:002908) looks decent, right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Guangdong Tecsun Science & TechnologyLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = CN¥136m ÷ (CN¥1.5b - CN¥299m) (Based on the trailing twelve months to June 2023).
So, Guangdong Tecsun Science & TechnologyLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.0% it's much better.
See our latest analysis for Guangdong Tecsun Science & TechnologyLtd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Guangdong Tecsun Science & TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Guangdong Tecsun Science & TechnologyLtd's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 88% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Guangdong Tecsun Science & TechnologyLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line On Guangdong Tecsun Science & TechnologyLtd's ROCE
The main thing to remember is that Guangdong Tecsun Science & TechnologyLtd has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 124% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you want to continue researching Guangdong Tecsun Science & TechnologyLtd, 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.