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. Although, when we looked at Uroica Precision Information EngineeringLtd (SZSE:300099), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Uroica Precision Information EngineeringLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = CN¥153m ÷ (CN¥2.7b - CN¥294m) (Based on the trailing twelve months to June 2023).
Therefore, Uroica Precision Information EngineeringLtd has an ROCE of 6.4%. Even though it's in line with the industry average of 6.1%, it's still a low return by itself.
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 Uroica Precision Information EngineeringLtd's past further, check out this free graph covering Uroica Precision Information EngineeringLtd's past earnings, revenue and cash flow.
So How Is Uroica Precision Information EngineeringLtd's ROCE Trending?
There are better returns on capital out there than what we're seeing at Uroica Precision Information EngineeringLtd. Over the past five years, ROCE has remained relatively flat at around 6.4% and the business has deployed 37% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
What We Can Learn From Uroica Precision Information EngineeringLtd's ROCE
In summary, Uroica Precision Information EngineeringLtd has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 42% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
On a final note, we've found 4 warning signs for Uroica Precision Information EngineeringLtd that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.