What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Shenzhen King Brother Electronics TechnologyLtd (SZSE:301041) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 King Brother Electronics TechnologyLtd is:

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

0.025 = CN¥17m ÷ (CN¥897m - CN¥209m) (Based on the trailing twelve months to September 2024).

Therefore, Shenzhen King Brother Electronics TechnologyLtd has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.

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

What Can We Tell From Shenzhen King Brother Electronics TechnologyLtd's ROCE Trend?

When we looked at the ROCE trend at Shenzhen King Brother Electronics TechnologyLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.5% from 14% five years ago. However it looks like Shenzhen King Brother Electronics TechnologyLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Shenzhen King Brother Electronics TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 17% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Shenzhen King Brother Electronics TechnologyLtd (including 1 which is significant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.