We Like These Underlying Return On Capital Trends At ZHEJIANG DIBAY ELECTRICLtd (SHSE:603320)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at ZHEJIANG DIBAY ELECTRICLtd (SHSE:603320) and its trend of ROCE, we really liked what we saw.

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 ZHEJIANG DIBAY ELECTRICLtd is:

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

0.077 = CN¥87m ÷ (CN¥1.4b - CN¥229m) (Based on the trailing twelve months to December 2024).

Thus, ZHEJIANG DIBAY ELECTRICLtd has an ROCE of 7.7%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.2%.

See our latest analysis for ZHEJIANG DIBAY ELECTRICLtd

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

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.7%. The amount of capital employed has increased too, by 69%. 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...

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 ZHEJIANG DIBAY ELECTRICLtd has. And with a respectable 50% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, ZHEJIANG DIBAY ELECTRICLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.