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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at CETC Cyberspace Security Technology (SZSE:002268), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for CETC Cyberspace Security Technology:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = CN¥264m ÷ (CN¥7.1b - CN¥1.8b) (Based on the trailing twelve months to June 2023).
So, CETC Cyberspace Security Technology has an ROCE of 5.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.3%.
Check out our latest analysis for CETC Cyberspace Security Technology
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 want to delve into the historical earnings, revenue and cash flow of CETC Cyberspace Security Technology, check out these free graphs here.
So How Is CETC Cyberspace Security Technology's ROCE Trending?
In terms of CETC Cyberspace Security Technology's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.0% for the last five years, and the capital employed within the business has risen 23% in that time. 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.
In Conclusion...
In conclusion, CETC Cyberspace Security Technology has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 29% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
CETC Cyberspace Security Technology could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While CETC Cyberspace Security Technology 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.
