If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over AIMA Technology Group's (SHSE:603529) trend of ROCE, we liked what we saw.
Understanding 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. The formula for this calculation on AIMA Technology Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = CN¥1.9b ÷ (CN¥22b - CN¥13b) (Based on the trailing twelve months to September 2023).
Therefore, AIMA Technology Group has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Auto industry average of 3.0% it's much better.
Above you can see how the current ROCE for AIMA Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AIMA Technology Group.
What Can We Tell From AIMA Technology Group's ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 545% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 57% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.
Our Take On AIMA Technology Group's ROCE
In the end, AIMA Technology Group has proven its ability to adequately reinvest capital at good rates of return. However, despite the favorable fundamentals, the stock has fallen 22% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
One more thing, we've spotted 1 warning sign facing AIMA Technology Group that you might find interesting.
While AIMA Technology Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.