We Like These Underlying Return On Capital Trends At Beijing WKW Automotive PartsLtd (SZSE:002662)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 Beijing WKW Automotive PartsLtd (SZSE:002662) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Beijing WKW Automotive PartsLtd:

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

0.11 = CN¥467m ÷ (CN¥5.3b - CN¥993m) (Based on the trailing twelve months to September 2024).

So, Beijing WKW Automotive PartsLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.0% it's much better.

View our latest analysis for Beijing WKW Automotive PartsLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Beijing WKW Automotive PartsLtd's past further, check out this free graph covering Beijing WKW Automotive PartsLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Shareholders will be relieved that Beijing WKW Automotive PartsLtd has broken into profitability. The company now earns 11% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Beijing WKW Automotive PartsLtd has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 19%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Beijing WKW Automotive PartsLtd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

To bring it all together, Beijing WKW Automotive PartsLtd has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 32% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing, we've spotted 1 warning sign facing Beijing WKW Automotive PartsLtd that you might find interesting.

While Beijing WKW Automotive PartsLtd 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.