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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Shenzhen S.C New Energy Technology's (SZSE:300724) look very promising so lets take a look.

What Is 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 Shenzhen S.C New Energy Technology is:

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

0.27 = CN¥2.9b ÷ (CN¥37b - CN¥27b) (Based on the trailing twelve months to September 2024).

Therefore, Shenzhen S.C New Energy Technology has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 4.8% earned by companies in a similar industry.

Above you can see how the current ROCE for Shenzhen S.C New Energy Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Shenzhen S.C New Energy Technology .

What Can We Tell From Shenzhen S.C New Energy Technology's ROCE Trend?

Shenzhen S.C New Energy Technology is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 27%. The amount of capital employed has increased too, by 320%. So we're very much inspired by what we're seeing at Shenzhen S.C New Energy Technology thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 72% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Key Takeaway

To sum it up, Shenzhen S.C New Energy Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 100% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Shenzhen S.C New Energy Technology, we've discovered 2 warning signs that you should be aware of.

Shenzhen S.C New Energy 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.