Jiangsu Bide Science and TechnologyLtd (SHSE:605298) May Have Issues Allocating Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Jiangsu Bide Science and TechnologyLtd (SHSE:605298), it didn't seem to tick all of these boxes.

Understanding 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. To calculate this metric for Jiangsu Bide Science and TechnologyLtd, this is the formula:

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

0.017 = CN¥16m ÷ (CN¥1.2b - CN¥237m) (Based on the trailing twelve months to September 2023).

So, Jiangsu Bide Science and TechnologyLtd has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.1%.

See our latest analysis for Jiangsu Bide Science and TechnologyLtd

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 Jiangsu Bide Science and TechnologyLtd.

The Trend Of ROCE

When we looked at the ROCE trend at Jiangsu Bide Science and TechnologyLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 27% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Jiangsu Bide Science and TechnologyLtd's ROCE

While returns have fallen for Jiangsu Bide Science and TechnologyLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 30% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Jiangsu Bide Science and TechnologyLtd does have some risks, we noticed 5 warning signs (and 2 which are concerning) we think you should know about.

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.