Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Ningbo Sunrise Elc TechnologyLtd (SZSE:002937) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Ningbo Sunrise Elc TechnologyLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = CN¥291m ÷ (CN¥2.4b - CN¥509m) (Based on the trailing twelve months to September 2023).
Therefore, Ningbo Sunrise Elc TechnologyLtd has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.3% it's much better.
Above you can see how the current ROCE for Ningbo Sunrise Elc TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ningbo Sunrise Elc TechnologyLtd for free.
The Trend Of ROCE
The trends we've noticed at Ningbo Sunrise Elc TechnologyLtd are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 135%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
All in all, it's terrific to see that Ningbo Sunrise Elc TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
On a separate note, we've found 1 warning sign for Ningbo Sunrise Elc TechnologyLtd you'll probably want to know about.
While Ningbo Sunrise Elc TechnologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.