Harbin Boshi Automation (SZSE:002698) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Harbin Boshi Automation (SZSE:002698) and its trend of ROCE, we really liked what we saw.

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

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 Harbin Boshi Automation is:

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

0.12 = CN¥494m ÷ (CN¥6.4b - CN¥2.2b) (Based on the trailing twelve months to September 2023).

Thus, Harbin Boshi Automation has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.2% it's much better.

Check out our latest analysis for Harbin Boshi Automation

Above you can see how the current ROCE for Harbin Boshi Automation compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Harbin Boshi Automation .

What Does the ROCE Trend For Harbin Boshi Automation Tell Us?

Investors would be pleased with what's happening at Harbin Boshi Automation. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The amount of capital employed has increased too, by 97%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Harbin Boshi Automation is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 88% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002698 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.