Return Trends At Quechen Silicon Chemical (SHSE:605183) Aren't Appealing

Simply Wall St · 10/15 23:44

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Quechen Silicon Chemical (SHSE:605183) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Quechen Silicon Chemical, this is the formula:

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

0.16 = CN¥500m ÷ (CN¥3.5b - CN¥440m) (Based on the trailing twelve months to June 2024).

So, Quechen Silicon Chemical has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

See our latest analysis for Quechen Silicon Chemical

roce
SHSE:605183 Return on Capital Employed October 15th 2024

In the above chart we have measured Quechen Silicon Chemical's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Quechen Silicon Chemical .

What Can We Tell From Quechen Silicon Chemical's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 99% in that time. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, Quechen Silicon Chemical has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 7.8% over the last three years, we'd suspect the market is beginning to recognize these trends. So to determine if Quechen Silicon Chemical is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know about the risks facing Quechen Silicon Chemical, we've discovered 1 warning sign that you should be aware of.

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.