What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into Suzhou Electrical Apparatus Science Academy (SZSE:300215), we weren't too upbeat about how things were going.

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 Electrical Apparatus Science Academy is:

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

0.024 = CN¥57m ÷ (CN¥2.8b - CN¥404m) (Based on the trailing twelve months to March 2024).

Therefore, Suzhou Electrical Apparatus Science Academy has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 5.7%.

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 Suzhou Electrical Apparatus Science Academy's past further, check out this free graph covering Suzhou Electrical Apparatus Science Academy's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Suzhou Electrical Apparatus Science Academy. To be more specific, the ROCE was 6.3% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Suzhou Electrical Apparatus Science Academy to turn into a multi-bagger.

Our Take On Suzhou Electrical Apparatus Science Academy's ROCE

In summary, it's unfortunate that Suzhou Electrical Apparatus Science Academy is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to know some of the risks facing Suzhou Electrical Apparatus Science Academy we've found 3 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

While Suzhou Electrical Apparatus Science Academy 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com