Returns On Capital At Zhejiang Qianjiang Motorcycle (SZSE:000913) Have Stalled

What are the early trends we should look for to identify a stock that could 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Zhejiang Qianjiang Motorcycle (SZSE:000913), it didn't seem to tick all of these boxes.

What Is 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. The formula for this calculation on Zhejiang Qianjiang Motorcycle is:

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

0.069 = CN¥433m ÷ (CN¥10b - CN¥4.0b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang Qianjiang Motorcycle has an ROCE of 6.9%. In absolute terms, that's a low return, but it's much better than the Auto industry average of 2.6%.

View our latest analysis for Zhejiang Qianjiang Motorcycle

In the above chart we have measured Zhejiang Qianjiang Motorcycle's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang Qianjiang Motorcycle .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Zhejiang Qianjiang Motorcycle. The company has consistently earned 6.9% for the last five years, and the capital employed within the business has risen 111% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Zhejiang Qianjiang Motorcycle's ROCE

In summary, Zhejiang Qianjiang Motorcycle has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 72% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Zhejiang Qianjiang Motorcycle does come with some risks, and we've found 1 warning sign that you should be aware of.

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.