If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Shenzhen Das Intellitech (SZSE:002421) and its ROCE trend, we weren't exactly thrilled.

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

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. The formula for this calculation on Shenzhen Das Intellitech is:

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

0.0093 = CN¥58m ÷ (CN¥9.5b - CN¥3.3b) (Based on the trailing twelve months to September 2024).

So, Shenzhen Das Intellitech has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the IT industry average of 3.7%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Das Intellitech's ROCE against it's prior returns. If you'd like to look at how Shenzhen Das Intellitech has performed in the past in other metrics, you can view this free graph of Shenzhen Das Intellitech's past earnings, revenue and cash flow.

What Can We Tell From Shenzhen Das Intellitech's ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 4.5% five years ago, while the business's capital employed increased by 42%. That being said, Shenzhen Das Intellitech raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Shenzhen Das Intellitech might not have received a full period of earnings contribution from it.

In Conclusion...

We're a bit apprehensive about Shenzhen Das Intellitech because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 11% 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 more about Shenzhen Das Intellitech, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.