Investors Will Want Nanning Baling Technology's (SZSE:002592) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Nanning Baling Technology (SZSE:002592) and its trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for Nanning Baling Technology, this is the formula:

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

0.0063 = CN¥5.6m ÷ (CN¥1.1b - CN¥238m) (Based on the trailing twelve months to June 2024).

So, Nanning Baling Technology has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 7.4%.

Check out our latest analysis for Nanning Baling Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nanning Baling Technology's ROCE against it's prior returns. If you'd like to look at how Nanning Baling Technology has performed in the past in other metrics, you can view this free graph of Nanning Baling Technology's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Like most people, we're pleased that Nanning Baling Technology is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 0.6% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 60% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

In Conclusion...

In the end, Nanning Baling Technology has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has fallen 62% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002592 on our platform that is definitely worth checking out.

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.