What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into AUPU Intelligent Technology (SHSE:603551), we weren't too upbeat about how things were going.

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

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. To calculate this metric for AUPU Intelligent Technology, this is the formula:

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

0.20 = CN¥293m ÷ (CN¥2.1b - CN¥634m) (Based on the trailing twelve months to September 2024).

Therefore, AUPU Intelligent Technology has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 9.2% earned by companies in a similar industry.

In the above chart we have measured AUPU Intelligent Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering AUPU Intelligent Technology for free.

What Can We Tell From AUPU Intelligent Technology's ROCE Trend?

There is reason to be cautious about AUPU Intelligent Technology, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 25% 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. If these trends continue, we wouldn't expect AUPU Intelligent Technology to turn into a multi-bagger.

The Bottom Line On AUPU Intelligent Technology's ROCE

In summary, it's unfortunate that AUPU Intelligent Technology is generating lower returns from the same amount of capital. However the stock has delivered a 36% return to shareholders over the last three years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Like most companies, AUPU Intelligent Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

AUPU Intelligent Technology is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.