Here's What To Make Of Bohai Leasing's (SZSE:000415) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Bohai Leasing (SZSE:000415), it didn't seem to tick all of these boxes.

What Is 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. Analysts use this formula to calculate it for Bohai Leasing:

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

0.061 = CN¥13b ÷ (CN¥262b - CN¥47b) (Based on the trailing twelve months to March 2024).

Therefore, Bohai Leasing has an ROCE of 6.1%. Even though it's in line with the industry average of 5.8%, it's still a low return by itself.

Check out our latest analysis for Bohai Leasing

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bohai Leasing's ROCE against it's prior returns. If you're interested in investigating Bohai Leasing's past further, check out this free graph covering Bohai Leasing's past earnings, revenue and cash flow.

So How Is Bohai Leasing's ROCE Trending?

Over the past five years, Bohai Leasing's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Bohai Leasing in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In summary, Bohai Leasing isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 30% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Bohai Leasing (including 2 which are significant) .

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.