Return Trends At Atlantic China Welding Consumables (SHSE:600558) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Atlantic China Welding Consumables (SHSE:600558) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Atlantic China Welding Consumables:

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

0.042 = CN¥104m ÷ (CN¥3.2b - CN¥692m) (Based on the trailing twelve months to September 2023).

Therefore, Atlantic China Welding Consumables has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.0%.

View our latest analysis for Atlantic China Welding Consumables

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

What Does the ROCE Trend For Atlantic China Welding Consumables Tell Us?

Over the past five years, Atlantic China Welding Consumables' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Atlantic China Welding Consumables to be a multi-bagger going forward.

The Bottom Line On Atlantic China Welding Consumables' ROCE

We can conclude that in regards to Atlantic China Welding Consumables' returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Atlantic China Welding Consumables and understanding it should be part of your investment process.

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.