Investors Could Be Concerned With Xi'an Bright Laser TechnologiesLtd's (SHSE:688333) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Xi'an Bright Laser TechnologiesLtd (SHSE:688333) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Xi'an Bright Laser TechnologiesLtd is:

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

0.024 = CN¥125m ÷ (CN¥6.5b - CN¥1.2b) (Based on the trailing twelve months to March 2024).

So, Xi'an Bright Laser TechnologiesLtd has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.9%.

Check out our latest analysis for Xi'an Bright Laser TechnologiesLtd

In the above chart we have measured Xi'an Bright Laser TechnologiesLtd'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 Xi'an Bright Laser TechnologiesLtd .

What Can We Tell From Xi'an Bright Laser TechnologiesLtd's ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 7.4% five years ago, while the business's capital employed increased by 748%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Xi'an Bright Laser TechnologiesLtd's earnings and if they change as a result from the capital raise.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Xi'an Bright Laser TechnologiesLtd. Furthermore the stock has climbed 23% over the last three years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you want to know some of the risks facing Xi'an Bright Laser TechnologiesLtd we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.