Returns Are Gaining Momentum At Bohai Leasing (SZSE:000415)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Bohai Leasing's (SZSE:000415) returns on capital, so let's have a look.

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

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

0.062 = CN¥14b ÷ (CN¥268b - CN¥35b) (Based on the trailing twelve months to September 2024).

Therefore, Bohai Leasing has an ROCE of 6.2%. In absolute terms, that's a low return, but it's much better than the Trade Distributors industry average of 5.0%.

View 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'd like to look at how Bohai Leasing has performed in the past in other metrics, you can view this free graph of Bohai Leasing's past earnings, revenue and cash flow.

The Trend Of ROCE

Bohai Leasing has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 32% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To bring it all together, Bohai Leasing has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 11% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

Bohai Leasing does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Bohai Leasing 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.