Is Shenzhen Desay Battery Technology (SZSE:000049) Struggling to Optimize Capital? Key Insights and Analysis

To spot a potential multi-bagger, there are key trends we should watch. First, we look for a growing return on capital employed (ROCE). Second, we check if the base of capital employed is expanding. If both are true, it usually indicates a strong business model with good chances for profitable growth.

Now, let’s take a closer look at Shenzhen Desay Battery Technology (SZSE:000049). At first, the returns don’t seem exceptional. However, digging deeper might reveal more insights.

What Is Return On Capital Employed (ROCE)?

ROCE is a metric that shows how much profit a company generates from its capital before tax. The formula to calculate it for Shenzhen Desay Battery Technology is:

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

Plugging in the numbers gives us: 0.061 = CN¥566m ÷ (CN¥17b – CN¥7.7b) (Based on the trailing twelve months to September 2024).

This means that Shenzhen Desay Battery Technology’s ROCE is 6.1%. While this is above the industry average of 5.8%, it’s still on the lower side.

The chart above shows how Shenzhen Desay Battery Technology’s current ROCE stacks up against its past performance. However, looking back alone won’t tell the whole story. Analysts have forecasts available for those curious about the company’s future.

What Can We Learn From Shenzhen Desay Battery Technology’s ROCE Trend?

The ROCE trend isn’t particularly encouraging. It has dropped from 26% five years ago, even as the company’s capital employed surged by 201%. Some of this rise in capital likely comes from a recent funding round, so the decrease in ROCE should be viewed cautiously.

Shenzhen Desay Battery Technology has also reduced its current liabilities to 45% of total assets. This shift could explain the lower ROCE. Essentially, less dependency on suppliers or short-term creditors means the company might be taking on more risk, but it also shows a move towards using more of its own resources.

The Bottom Line

In summary, while Shenzhen Desay Battery Technology is investing in its future, the declining returns raise some concerns. Over the past five years, the stock has dropped by 15%, which may dampen investor optimism about any turnaround.

Overall, the trends don’t inspire much confidence, and there may be better multi-bagger opportunities elsewhere.

For those keen on exploring more, it’s worth looking into the 3 warning signs we’ve found in our analysis of Shenzhen Desay Battery Technology. Additionally, we’ve listed companies achieving more than 25% return on equity for a clearer perspective.

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This article by Simply Wall St is for informational purposes only. It provides commentary based on historical data and is not financial advice. It does not recommend buying or selling any stocks and does not consider your financial situation or goals.