Returns On Capital At Jiangsu Bide Science and TechnologyLtd (SHSE:605298) Paint A Concerning Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Jiangsu Bide Science and TechnologyLtd (SHSE:605298), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Jiangsu Bide Science and TechnologyLtd is:

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

0.019 = CN¥19m ÷ (CN¥1.2b - CN¥237m) (Based on the trailing twelve months to June 2024).

So, Jiangsu Bide Science and TechnologyLtd has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.5%.

See our latest analysis for Jiangsu Bide Science and TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangsu Bide Science and TechnologyLtd's ROCE against it's prior returns. 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.

How Are Returns Trending?

When we looked at the ROCE trend at Jiangsu Bide Science and TechnologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 28%, but since then they've fallen to 1.9%. 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.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu Bide Science and TechnologyLtd. These trends are starting to be recognized by investors since the stock has delivered a 1.8% gain to shareholders who've held over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

On a final note, we found 4 warning signs for Jiangsu Bide Science and TechnologyLtd (1 doesn't sit too well with us) you should be aware of.

While Jiangsu Bide Science and TechnologyLtd 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.