Shanghai New Centurion Network Information Technology (SHSE:605398) May Have Issues Allocating Its Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Shanghai New Centurion Network Information Technology (SHSE:605398), it didn't seem to tick all of these boxes.
What Does the ROCE Trend For Shanghai New Centurion Network Information Technology Tell Us?
In terms of Shanghai New Centurion Network Information Technology's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 37%, but since then they've fallen to 3.9%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a side note, Shanghai New Centurion Network Information Technology has done well to pay down its current liabilities to 11% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
Source :- https://lnkd.in/deSMSyRv
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Vertical Lead - Indirect Business at Ishan Technologies
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