WINBO-Dongjian Automotive Technology (SZSE:300978) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating WINBO-Dongjian Automotive Technology (SZSE:300978), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 WINBO-Dongjian Automotive Technology is:

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

0.091 = CN¥169m ÷ (CN¥3.0b - CN¥1.1b) (Based on the trailing twelve months to June 2024).

Thus, WINBO-Dongjian Automotive Technology has an ROCE of 9.1%. On its own that's a low return, but compared to the average of 7.2% generated by the Auto Components industry, it's much better.

Check out our latest analysis for WINBO-Dongjian Automotive Technology

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'd like to look at how WINBO-Dongjian Automotive Technology has performed in the past in other metrics, you can view this free graph of WINBO-Dongjian Automotive Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For WINBO-Dongjian Automotive Technology Tell Us?

In terms of WINBO-Dongjian Automotive Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for WINBO-Dongjian Automotive Technology. However, despite the promising trends, the stock has fallen 24% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

WINBO-Dongjian Automotive Technology does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are concerning...

While WINBO-Dongjian Automotive Technology 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.