Greenland Technologies Holding (NASDAQ:GTEC) Is Looking To Continue Growing Its Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, Greenland Technologies Holding (NASDAQ:GTEC) looks quite promising in regards to its trends of return on capital.
What is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Greenland Technologies Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$11m ÷ (US$158m - US$89m) (Based on the trailing twelve months to September 2021).
So, Greenland Technologies Holding has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 10% it's much better.
Check out our latest analysis for Greenland Technologies Holding
Above you can see how the current ROCE for Greenland Technologies Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Greenland Technologies Holding.
So How Is Greenland Technologies Holding's ROCE Trending?
Investors would be pleased with what's happening at Greenland Technologies Holding. Over the last three years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 45%. So we're very much inspired by what we're seeing at Greenland Technologies Holding thanks to its ability to profitably reinvest capital.
On a side note, Greenland Technologies Holding's current liabilities are still rather high at 57% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Bottom Line On Greenland Technologies Holding's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Greenland Technologies Holding has. Astute investors may have an opportunity here because the stock has declined 58% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.
One final note, you should learn about the 5 warning signs we've spotted with Greenland Technologies Holding (including 2 which are a bit unpleasant) .
While Greenland Technologies Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
