GUILIN FUDALtd (SHSE:603166) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at GUILIN FUDALtd (SHSE:603166) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on GUILIN FUDALtd is:

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

0.072 = CN¥185m ÷ (CN¥3.8b - CN¥1.2b) (Based on the trailing twelve months to September 2024).

Thus, GUILIN FUDALtd has an ROCE of 7.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.

View our latest analysis for GUILIN FUDALtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for GUILIN FUDALtd's ROCE against it's prior returns. If you'd like to look at how GUILIN FUDALtd has performed in the past in other metrics, you can view this free graph of GUILIN FUDALtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For GUILIN FUDALtd Tell Us?

GUILIN FUDALtd's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 35% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On GUILIN FUDALtd's ROCE

In summary, we're delighted to see that GUILIN FUDALtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 40% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing: We've identified 2 warning signs with GUILIN FUDALtd (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

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.

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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.