Returns At Zhejiang Wanfeng Auto Wheel (SZSE:002085) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Zhejiang Wanfeng Auto Wheel (SZSE:002085) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Zhejiang Wanfeng Auto Wheel:

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

0.16 = CN¥1.7b ÷ (CN¥18b - CN¥7.0b) (Based on the trailing twelve months to March 2024).

Therefore, Zhejiang Wanfeng Auto Wheel 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.

See our latest analysis for Zhejiang Wanfeng Auto Wheel

In the above chart we have measured Zhejiang Wanfeng Auto Wheel'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 Wanfeng Auto Wheel .

What Does the ROCE Trend For Zhejiang Wanfeng Auto Wheel Tell Us?

Zhejiang Wanfeng Auto Wheel's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 29% whilst employing roughly the same amount of capital. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Zhejiang Wanfeng Auto Wheel's ROCE

To sum it up, Zhejiang Wanfeng Auto Wheel is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 179% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Zhejiang Wanfeng Auto Wheel, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.