Return Trends At Xinjiang Beixin Road & Bridge Group (SZSE:002307) Aren't Appealing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Xinjiang Beixin Road & Bridge Group (SZSE:002307) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 Xinjiang Beixin Road & Bridge Group:

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

0.025 = CN¥1.0b ÷ (CN¥56b - CN¥14b) (Based on the trailing twelve months to June 2024).

Therefore, Xinjiang Beixin Road & Bridge Group has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Construction industry average of 5.7%.

View our latest analysis for Xinjiang Beixin Road & Bridge Group

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 Xinjiang Beixin Road & Bridge Group has performed in the past in other metrics, you can view this free graph of Xinjiang Beixin Road & Bridge Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Xinjiang Beixin Road & Bridge Group. The company has employed 214% more capital in the last five years, and the returns on that capital have remained stable at 2.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 26% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Xinjiang Beixin Road & Bridge Group's ROCE

In conclusion, Xinjiang Beixin Road & Bridge Group has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 46% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Xinjiang Beixin Road & Bridge Group does have some risks, we noticed 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

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.