The Return Trends At Zhejiang Qianjiang Motorcycle (SZSE:000913) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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, we've noticed some promising trends at Zhejiang Qianjiang Motorcycle (SZSE:000913) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.046 = CN¥280m ÷ (CN¥9.3b - CN¥3.2b) (Based on the trailing twelve months to March 2024).

Thus, Zhejiang Qianjiang Motorcycle has an ROCE of 4.6%. On its own that's a low return, but compared to the average of 2.9% generated by the Auto industry, it's much better.

Check out 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'd like, you can check out the forecasts from the analysts covering Zhejiang Qianjiang Motorcycle for free.

What Does the ROCE Trend For Zhejiang Qianjiang Motorcycle Tell Us?

The fact that Zhejiang Qianjiang Motorcycle is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Zhejiang Qianjiang Motorcycle is utilizing 122% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Long story short, we're delighted to see that Zhejiang Qianjiang Motorcycle's reinvestment activities have paid off and the company is now profitable. And with a respectable 72% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with Zhejiang Qianjiang Motorcycle and understanding them should be part of your investment process.

While Zhejiang Qianjiang Motorcycle 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com