What trends should we look for it we want to identify stocks that can 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. So when we looked at Telling Telecommunication HoldingLtd (SZSE:000829) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Telling Telecommunication HoldingLtd is:

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

0.13 = CN¥752m ÷ (CN¥22b - CN¥17b) (Based on the trailing twelve months to September 2023).

Thus, Telling Telecommunication HoldingLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.0% generated by the Electronic industry.

View our latest analysis for Telling Telecommunication HoldingLtd

In the above chart we have measured Telling Telecommunication HoldingLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Telling Telecommunication HoldingLtd here for free.

What Can We Tell From Telling Telecommunication HoldingLtd's ROCE Trend?

Investors would be pleased with what's happening at Telling Telecommunication HoldingLtd. Over the last five years, returns on capital employed have risen substantially to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 56%. So we're very much inspired by what we're seeing at Telling Telecommunication HoldingLtd thanks to its ability to profitably reinvest capital.

Another thing to note, Telling Telecommunication HoldingLtd has a high ratio of current liabilities to total assets of 74%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Telling Telecommunication HoldingLtd's ROCE

All in all, it's terrific to see that Telling Telecommunication HoldingLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 50% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Telling Telecommunication HoldingLtd can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Telling Telecommunication HoldingLtd (including 2 which are concerning) .

While Telling Telecommunication HoldingLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.