Hunan Boyun New MaterialsLtd's (SZSE:002297) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Hunan Boyun New MaterialsLtd (SZSE:002297) and its trend of ROCE, we really liked what we saw.

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

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 Hunan Boyun New MaterialsLtd:

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

0.0022 = CN¥5.0m ÷ (CN¥2.9b - CN¥676m) (Based on the trailing twelve months to September 2024).

Therefore, Hunan Boyun New MaterialsLtd has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Aerospace & Defense industry average of 4.4%.

Check out our latest analysis for Hunan Boyun New MaterialsLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Hunan Boyun New MaterialsLtd has performed in the past in other metrics, you can view this free graph of Hunan Boyun New MaterialsLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Hunan Boyun New MaterialsLtd is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 0.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Hunan Boyun New MaterialsLtd is utilizing 31% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Hunan Boyun New MaterialsLtd's ROCE

Long story short, we're delighted to see that Hunan Boyun New MaterialsLtd's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 7.5% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002297 on our platform that is definitely worth checking out.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.