The Returns At Suzhou Institute of Building Science GroupLtd (SHSE:603183) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Suzhou Institute of Building Science GroupLtd (SHSE:603183) and its ROCE trend, we weren't exactly thrilled.

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 Suzhou Institute of Building Science GroupLtd, this is the formula:

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

0.085 = CN¥140m ÷ (CN¥2.0b - CN¥350m) (Based on the trailing twelve months to June 2024).

Thus, Suzhou Institute of Building Science GroupLtd has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Construction industry average of 5.7%.

See our latest analysis for Suzhou Institute of Building Science GroupLtd

In the above chart we have measured Suzhou Institute of Building Science GroupLtd'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 Suzhou Institute of Building Science GroupLtd .

So How Is Suzhou Institute of Building Science GroupLtd's ROCE Trending?

The returns on capital haven't changed much for Suzhou Institute of Building Science GroupLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 8.5% and the business has deployed 121% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Suzhou Institute of Building Science GroupLtd's ROCE

In conclusion, Suzhou Institute of Building Science GroupLtd has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 19% in the last five years. 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.

Suzhou Institute of Building Science GroupLtd does have some risks though, and we've spotted 1 warning sign for Suzhou Institute of Building Science GroupLtd that you might be interested in.

While Suzhou Institute of Building Science GroupLtd 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.