Here's What To Make Of Shanghai Daimay Automotive Interior's (SHSE:603730) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of Shanghai Daimay Automotive Interior (SHSE:603730) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. Analysts use this formula to calculate it for Shanghai Daimay Automotive Interior:

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

0.16 = CN¥939m ÷ (CN¥7.0b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

Thus, Shanghai Daimay Automotive Interior has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Auto Components industry.

Check out our latest analysis for Shanghai Daimay Automotive Interior

Above you can see how the current ROCE for Shanghai Daimay Automotive Interior compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shanghai Daimay Automotive Interior for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 46% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Shanghai Daimay Automotive Interior has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Shanghai Daimay Automotive Interior's ROCE

The main thing to remember is that Shanghai Daimay Automotive Interior has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 27% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

While Shanghai Daimay Automotive Interior doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 603730 on our platform.

While Shanghai Daimay Automotive Interior 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.