If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, RoboTechnik Intelligent Technology (SZSE:300757) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for RoboTechnik Intelligent Technology:

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

0.15 = CN¥162m ÷ (CN¥2.4b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

Thus, RoboTechnik Intelligent Technology has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.2% it's much better.

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

What Does the ROCE Trend For RoboTechnik Intelligent Technology Tell Us?

We like the trends that we're seeing from RoboTechnik Intelligent Technology. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 53% more capital is being employed now too. So we're very much inspired by what we're seeing at RoboTechnik Intelligent Technology thanks to its ability to profitably reinvest capital.

Another thing to note, RoboTechnik Intelligent Technology has a high ratio of current liabilities to total assets of 55%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

All in all, it's terrific to see that RoboTechnik Intelligent Technology is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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 RoboTechnik Intelligent Technology, we've discovered 3 warning signs that you should be aware of.

While RoboTechnik Intelligent 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.