If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Suzhou Sushi Testing GroupLtd (SZSE:300416) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Suzhou Sushi Testing GroupLtd is:

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

0.11 = CN¥348m ÷ (CN¥4.7b - CN¥1.4b) (Based on the trailing twelve months to June 2023).

Therefore, Suzhou Sushi Testing GroupLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.3% it's much better.

Check out our latest analysis for Suzhou Sushi Testing GroupLtd

Above you can see how the current ROCE for Suzhou Sushi Testing GroupLtd 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 Suzhou Sushi Testing GroupLtd.

What Does the ROCE Trend For Suzhou Sushi Testing GroupLtd Tell Us?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 270% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Suzhou Sushi Testing GroupLtd 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.

In Conclusion...

In the end, Suzhou Sushi Testing GroupLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 221% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Like most companies, Suzhou Sushi Testing GroupLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

While Suzhou Sushi Testing GroupLtd 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.