Sieyuan Electric (SZSE:002028) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Sieyuan Electric (SZSE:002028) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Sieyuan Electric is:

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

0.17 = CN¥1.8b ÷ (CN¥17b - CN¥6.5b) (Based on the trailing twelve months to December 2023).

Thus, Sieyuan Electric has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Electrical industry.

See our latest analysis for Sieyuan Electric

Above you can see how the current ROCE for Sieyuan Electric compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Sieyuan Electric .

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Sieyuan Electric. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 124% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Sieyuan Electric is reaping the rewards from prior investments and is growing its capital base. And a remarkable 380% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Sieyuan Electric can keep these trends up, it could have a bright future ahead.

While Sieyuan Electric looks impressive, no company is worth an infinite price. The intrinsic value infographic for 002028 helps visualize whether it is currently trading for a fair price.

While Sieyuan Electric 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.