We Like These Underlying Return On Capital Trends At Harbin Boshi Automation (SZSE:002698)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Harbin Boshi Automation's (SZSE:002698) returns on capital, so let's have a look.

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. To calculate this metric for Harbin Boshi Automation, this is the formula:

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

0.11 = CN¥482m ÷ (CN¥6.4b - CN¥2.2b) (Based on the trailing twelve months to September 2023).

So, Harbin Boshi Automation has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Machinery industry.

See 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 .

The Trend Of ROCE

We like the trends that we're seeing from Harbin Boshi Automation. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 97%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Harbin Boshi Automation's ROCE

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 96% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Harbin Boshi Automation and understanding it should be part of your investment process.

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.