KEDE Numerical Control (SHSE:688305) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in KEDE Numerical Control's (SHSE:688305) returns on capital, so let's have a look.

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. The formula for this calculation on KEDE Numerical Control is:

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

0.095 = CN¥115m ÷ (CN¥1.5b - CN¥271m) (Based on the trailing twelve months to December 2023).

Thus, KEDE Numerical Control has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 6.1% generated by the Machinery industry, it's much better.

Check out our latest analysis for KEDE Numerical Control

In the above chart we have measured KEDE Numerical Control'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 KEDE Numerical Control .

So How Is KEDE Numerical Control's ROCE Trending?

We're delighted to see that KEDE Numerical Control is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 9.5% which is a sight for sore eyes. Not only that, but the company is utilizing 212% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

To the delight of most shareholders, KEDE Numerical Control has now broken into profitability. And since the stock has fallen 20% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

While KEDE Numerical Control looks impressive, no company is worth an infinite price. The intrinsic value infographic for 688305 helps visualize whether it is currently trading for a fair price.

While KEDE Numerical Control 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.