Investors Will Want Dajin Heavy IndustryLtd's (SZSE:002487) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Dajin Heavy IndustryLtd (SZSE:002487) and its trend of ROCE, we really liked what we saw.

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 Dajin Heavy IndustryLtd is:

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

0.066 = CN¥485m ÷ (CN¥10b - CN¥2.7b) (Based on the trailing twelve months to March 2024).

So, Dajin Heavy IndustryLtd has an ROCE of 6.6%. On its own, that's a low figure but it's around the 6.0% average generated by the Electrical industry.

See our latest analysis for Dajin Heavy IndustryLtd

In the above chart we have measured Dajin Heavy IndustryLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Dajin Heavy IndustryLtd .

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 254% more capital is being employed now too. So we're very much inspired by what we're seeing at Dajin Heavy IndustryLtd thanks to its ability to profitably reinvest capital.

Our Take On Dajin Heavy IndustryLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Dajin Heavy IndustryLtd has. And a remarkable 444% 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.

Dajin Heavy IndustryLtd does have some risks though, and we've spotted 1 warning sign for Dajin Heavy IndustryLtd that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com