Returns On Capital Are Showing Encouraging Signs At Fujian Longxi Bearing (Group) (SHSE:600592)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So on that note, Fujian Longxi Bearing (Group) (SHSE:600592) looks quite promising in regards to its trends of return on capital.

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. 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)

0.035 = CN¥109m ÷ (CN¥3.6b - CN¥472m) (Based on the trailing twelve months to September 2024).

Thus, Fujian Longxi Bearing (Group) has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.3%.

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

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

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 3.5%. The amount of capital employed has increased too, by 41%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Fujian Longxi Bearing (Group)'s ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Fujian Longxi Bearing (Group) has. Since the stock has returned a solid 51% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Fujian Longxi Bearing (Group) can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Fujian Longxi Bearing (Group) that you might find interesting.

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.