Returns On Capital At Bethel Automotive Safety Systems (SHSE:603596) Paint A Concerning Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Bethel Automotive Safety Systems (SHSE:603596), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Bethel Automotive Safety Systems, this is the formula:

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

0.13 = CN¥811m ÷ (CN¥9.8b - CN¥3.7b) (Based on the trailing twelve months to September 2023).

So, Bethel Automotive Safety Systems has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Auto Components industry.

View our latest analysis for Bethel Automotive Safety Systems

Above you can see how the current ROCE for Bethel Automotive Safety Systems compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Bethel Automotive Safety Systems .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Bethel Automotive Safety Systems, we didn't gain much confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 13%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Bethel Automotive Safety Systems' ROCE

While returns have fallen for Bethel Automotive Safety Systems in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 163% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

Bethel Automotive Safety Systems does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.