In the quest for stocks with the potential to multiply in value over the long term, investors often turn to indicators such as Return on Capital Employed (ROCE) to gauge a company’s profitability and growth prospects. Aotecar New Energy Technology (SZSE:002239) has recently come under scrutiny, with analysts delving into its ROCE trend to assess its investment potential.
ROCE, a key metric, measures the efficiency with which a company utilizes its capital to generate profits before tax. For Aotecar New Energy Technology, the ROCE calculation is derived from its Earnings Before Interest and Tax (EBIT) divided by the difference between Total Assets and Current Liabilities.
Based on the trailing twelve months to September 2023, Aotecar New Energy Technology boasts an ROCE of 3.5%. While this figure falls below the Auto Components industry average of 6.8%, it provides valuable insights into the company’s performance and growth trajectory.
Analyzing historical data offers valuable context, allowing investors to gauge Aotecar New Energy Technology’s ROCE against its past returns. Despite the relatively low absolute ROCE, the company has shown a promising upward trend, with a 22% increase over the last five years. This trend suggests that Aotecar New Energy Technology is capitalizing on its past investments and enhancing its profitability.
However, it’s essential to note that the company has experienced a notable rise in current liabilities over the same period. This increase implies that a significant portion of its operations is funded by short-term creditors, posing potential risks to the business.
In conclusion, while Aotecar New Energy Technology demonstrates improving returns, investors should consider the implications of its rising current liabilities. Despite the upward trajectory in ROCE, the stock has only returned 24% to shareholders over the past five years, indicating that further evaluation of its valuation and other metrics is warranted to uncover its full investment potential.