Returns At ZHEJIANG DIBAY ELECTRICLtd (SHSE:603320) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at ZHEJIANG DIBAY ELECTRICLtd (SHSE:603320) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for ZHEJIANG DIBAY ELECTRICLtd:

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

0.071 = CN¥79m ÷ (CN¥1.3b - CN¥237m) (Based on the trailing twelve months to June 2024).

Thus, ZHEJIANG DIBAY ELECTRICLtd has an ROCE of 7.1%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.5%.

View our latest analysis for ZHEJIANG DIBAY ELECTRICLtd

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of ZHEJIANG DIBAY ELECTRICLtd.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.1%. The amount of capital employed has increased too, by 70%. So we're very much inspired by what we're seeing at ZHEJIANG DIBAY ELECTRICLtd thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that ZHEJIANG DIBAY ELECTRICLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 12% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for ZHEJIANG DIBAY ELECTRICLtd (of which 1 is a bit unpleasant!) that you should know about.

While ZHEJIANG DIBAY ELECTRICLtd 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.