The Returns On Capital At Zhuzhou Kibing GroupLtd (SHSE:601636) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Zhuzhou Kibing GroupLtd (SHSE:601636) 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Zhuzhou Kibing GroupLtd is:

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

0.097 = CN¥2.6b ÷ (CN¥34b - CN¥7.1b) (Based on the trailing twelve months to March 2024).

Thus, Zhuzhou Kibing GroupLtd has an ROCE of 9.7%. In absolute terms, that's a low return, but it's much better than the Building industry average of 7.7%.

View our latest analysis for Zhuzhou Kibing GroupLtd

Above you can see how the current ROCE for Zhuzhou Kibing GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Zhuzhou Kibing GroupLtd for free.

So How Is Zhuzhou Kibing GroupLtd's ROCE Trending?

When we looked at the ROCE trend at Zhuzhou Kibing GroupLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Zhuzhou Kibing GroupLtd is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 172% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Zhuzhou Kibing GroupLtd does have some risks, we noticed 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While Zhuzhou Kibing GroupLtd 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.