Returns Are Gaining Momentum At Luoyang Northglass TechnologyLtd (SZSE:002613)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Luoyang Northglass TechnologyLtd's (SZSE:002613) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Luoyang Northglass TechnologyLtd is:

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

0.038 = CN¥69m ÷ (CN¥2.6b - CN¥742m) (Based on the trailing twelve months to June 2024).

Therefore, Luoyang Northglass TechnologyLtd has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.5%.

See our latest analysis for Luoyang Northglass TechnologyLtd

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 Luoyang Northglass TechnologyLtd has performed in the past in other metrics, you can view this free graph of Luoyang Northglass TechnologyLtd's past earnings, revenue and cash flow.

What Can We Tell From Luoyang Northglass TechnologyLtd's ROCE Trend?

Luoyang Northglass TechnologyLtd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.8%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Key Takeaway

To bring it all together, Luoyang Northglass TechnologyLtd has done well to increase the returns it's generating from its capital employed. And with a respectable 48% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Luoyang Northglass TechnologyLtd does have some risks though, and we've spotted 1 warning sign for Luoyang Northglass TechnologyLtd that you might be interested in.

While Luoyang Northglass TechnologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.