KEBODA TECHNOLOGY's (SHSE:603786) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating KEBODA TECHNOLOGY (SHSE:603786), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 KEBODA TECHNOLOGY is:

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

0.15 = CN¥784m ÷ (CN¥6.9b - CN¥1.6b) (Based on the trailing twelve months to September 2024).

Therefore, KEBODA TECHNOLOGY has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.0% it's much better.

Check out our latest analysis for KEBODA TECHNOLOGY

In the above chart we have measured KEBODA TECHNOLOGY's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering KEBODA TECHNOLOGY for free.

The Trend Of ROCE

In terms of KEBODA TECHNOLOGY's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 15% from 25% five years ago. 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.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for KEBODA TECHNOLOGY. In light of this, the stock has only gained 23% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you're still interested in KEBODA TECHNOLOGY it's worth checking out our FREE intrinsic value approximation for 603786 to see if it's trading at an attractive price in other respects.

While KEBODA TECHNOLOGY 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.