Fujian Longxi Bearing (Group) (SHSE:600592) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Fujian Longxi Bearing (Group) (SHSE:600592) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Fujian Longxi Bearing (Group), this is the formula:

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

0.056 = CN¥168m ÷ (CN¥3.7b - CN¥664m) (Based on the trailing twelve months to September 2023).

So, Fujian Longxi Bearing (Group) has an ROCE of 5.6%. Even though it's in line with the industry average of 6.2%, it's still a low return by itself.

Check out our latest analysis for Fujian Longxi Bearing (Group)

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 Fujian Longxi Bearing (Group)'s past further, check out this free graph covering Fujian Longxi Bearing (Group)'s past earnings, revenue and cash flow.

What Can We Tell From Fujian Longxi Bearing (Group)'s ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.6%. The amount of capital employed has increased too, by 40%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Fujian Longxi Bearing (Group) is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 20% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

While Fujian Longxi Bearing (Group) looks impressive, no company is worth an infinite price. The intrinsic value infographic for 600592 helps visualize whether it is currently trading for a fair price.

While Fujian Longxi Bearing (Group) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.