We Like SAN BIAN SCIENCE& TECHNOLOGY's (SZSE:002112) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of SAN BIAN SCIENCE& TECHNOLOGY (SZSE:002112) looks great, so lets see what the trend can tell us.

Understanding 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 SAN BIAN SCIENCE& TECHNOLOGY is:

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

0.22 = CN¥173m ÷ (CN¥2.2b - CN¥1.4b) (Based on the trailing twelve months to September 2024).

Thus, SAN BIAN SCIENCE& TECHNOLOGY has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 5.8% earned by companies in a similar industry.

See our latest analysis for SAN BIAN SCIENCE& TECHNOLOGY

Historical performance is a great place to start when researching a stock so above you can see the gauge for SAN BIAN SCIENCE& TECHNOLOGY's ROCE against it's prior returns. If you'd like to look at how SAN BIAN SCIENCE& TECHNOLOGY has performed in the past in other metrics, you can view this free graph of SAN BIAN SCIENCE& TECHNOLOGY's past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at SAN BIAN SCIENCE& TECHNOLOGY. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 78%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that SAN BIAN SCIENCE& TECHNOLOGY has a current liabilities to total assets ratio of 64%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On SAN BIAN SCIENCE& TECHNOLOGY's ROCE

All in all, it's terrific to see that SAN BIAN SCIENCE& TECHNOLOGY is reaping the rewards from prior investments and is growing its capital base. And a remarkable 145% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

SAN BIAN SCIENCE& TECHNOLOGY does have some risks though, and we've spotted 2 warning signs for SAN BIAN SCIENCE& TECHNOLOGY that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.