Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at Guizhou Guihang Automotive ComponentsLtd (SHSE:600523), we've spotted some signs that it could be struggling, so let's investigate.

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 Guizhou Guihang Automotive ComponentsLtd is:

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

0.045 = CN¥135m ÷ (CN¥3.7b - CN¥711m) (Based on the trailing twelve months to September 2023).

Thus, Guizhou Guihang Automotive ComponentsLtd has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 5.8%.

View our latest analysis for Guizhou Guihang Automotive ComponentsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Guizhou Guihang Automotive ComponentsLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Guizhou Guihang Automotive ComponentsLtd, check out these free graphs here.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Guizhou Guihang Automotive ComponentsLtd. Unfortunately the returns on capital have diminished from the 5.9% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Guizhou Guihang Automotive ComponentsLtd becoming one if things continue as they have.

The Bottom Line On Guizhou Guihang Automotive ComponentsLtd's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 29% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know about the risks facing Guizhou Guihang Automotive ComponentsLtd, we've discovered 2 warning signs that you should be aware of.

While Guizhou Guihang Automotive ComponentsLtd 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.