Investors Could Be Concerned With Nantong Xingqiu GraphiteLtd's (SHSE:688633) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 investigating Nantong Xingqiu GraphiteLtd (SHSE:688633), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Nantong Xingqiu GraphiteLtd:

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

0.064 = CN¥139m ÷ (CN¥2.9b - CN¥717m) (Based on the trailing twelve months to September 2024).

Thus, Nantong Xingqiu GraphiteLtd has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.2%.

Check out our latest analysis for Nantong Xingqiu GraphiteLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nantong Xingqiu GraphiteLtd'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 Nantong Xingqiu GraphiteLtd.

What Can We Tell From Nantong Xingqiu GraphiteLtd's ROCE Trend?

In terms of Nantong Xingqiu GraphiteLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 28% over the last four years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

In summary, we're somewhat concerned by Nantong Xingqiu GraphiteLtd's diminishing returns on increasing amounts of capital. And long term shareholders have watched their investments stay flat over the last three years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Nantong Xingqiu GraphiteLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Nantong Xingqiu GraphiteLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.