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

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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.

What Is Return On Capital Employed (ROCE)?

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. 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)

0.024 = CN¥1.0b ÷ (CN¥57b - CN¥14b) (Based on the trailing twelve months to September 2024).

So, Xinjiang Beixin Road & Bridge Group has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Construction industry average of 6.1%.

See our latest analysis for Xinjiang Beixin Road & Bridge Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Xinjiang Beixin Road & Bridge Group's ROCE against it's prior returns. 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 Does the ROCE Trend For Xinjiang Beixin Road & Bridge Group Tell Us?

The returns on capital haven't changed much for Xinjiang Beixin Road & Bridge Group in recent years. Over the past five years, ROCE has remained relatively flat at around 2.4% and the business has deployed 225% more capital into its operations. 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.

On a side note, Xinjiang Beixin Road & Bridge Group has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

As we've seen above, Xinjiang Beixin Road & Bridge Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 26% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Xinjiang Beixin Road & Bridge Group, we've spotted 3 warning signs, and 2 of them are significant.

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.