We Like These Underlying Return On Capital Trends At Changzhou Langbo Sealing TechnologiesLtd (SHSE:603655)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Changzhou Langbo Sealing TechnologiesLtd's (SHSE:603655) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Changzhou Langbo Sealing TechnologiesLtd is:

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

0.046 = CN¥25m ÷ (CN¥574m - CN¥30m) (Based on the trailing twelve months to September 2024).

Therefore, Changzhou Langbo Sealing TechnologiesLtd has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 7.0%.

See our latest analysis for Changzhou Langbo Sealing TechnologiesLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Changzhou Langbo Sealing TechnologiesLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Changzhou Langbo Sealing TechnologiesLtd.

So How Is Changzhou Langbo Sealing TechnologiesLtd's ROCE Trending?

While there are companies with higher returns on capital out there, we still find the trend at Changzhou Langbo Sealing TechnologiesLtd promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 27% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To sum it up, Changzhou Langbo Sealing TechnologiesLtd is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 3.0% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Changzhou Langbo Sealing TechnologiesLtd we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Changzhou Langbo Sealing TechnologiesLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.