Returns On Capital At Anhui HeliLtd (SHSE:600761) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. That's why when we briefly looked at Anhui HeliLtd's (SHSE:600761) ROCE trend, we were pretty happy with what we saw.

Understanding 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 Anhui HeliLtd, this is the formula:

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

0.12 = CN¥1.5b ÷ (CN¥19b - CN¥6.2b) (Based on the trailing twelve months to September 2024).

Therefore, Anhui HeliLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.2% it's much better.

View our latest analysis for Anhui HeliLtd

In the above chart we have measured Anhui HeliLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Anhui HeliLtd .

So How Is Anhui HeliLtd's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 127% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Anhui HeliLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Anhui HeliLtd's ROCE

In the end, Anhui HeliLtd has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 105% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to know some of the risks facing Anhui HeliLtd we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While Anhui HeliLtd 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.