We Like These Underlying Return On Capital Trends At Luoyang Northglass TechnologyLtd (SZSE:002613)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Luoyang Northglass TechnologyLtd (SZSE:002613) so let's look a bit deeper.

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

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. To calculate this metric for Luoyang Northglass TechnologyLtd, this is the formula:

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

0.055 = CN¥100m ÷ (CN¥2.5b - CN¥668m) (Based on the trailing twelve months to September 2023).

Therefore, Luoyang Northglass TechnologyLtd has an ROCE of 5.5%. In absolute terms, that's a low return but it's around the Machinery industry average of 6.0%.

See our latest analysis for Luoyang Northglass TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Luoyang Northglass TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Luoyang Northglass TechnologyLtd's past further, check out this free graph covering Luoyang Northglass TechnologyLtd's past earnings, revenue and cash flow.

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

We're delighted to see that Luoyang Northglass TechnologyLtd is reaping rewards from its investments and has now broken into profitability. The company now earns 5.5% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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. Because in the end, a business can only get so efficient.

The Key Takeaway

In summary, we're delighted to see that Luoyang Northglass TechnologyLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 15% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002613 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.