Investors Could Be Concerned With Keli Motor Group's (SZSE:002892) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Keli Motor Group (SZSE:002892) and its ROCE trend, we weren't exactly thrilled.

What Is 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 Keli Motor Group is:

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

0.028 = CN¥41m ÷ (CN¥1.8b - CN¥390m) (Based on the trailing twelve months to September 2023).

So, Keli Motor Group has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 6.6%.

Check out our latest analysis for Keli Motor Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Keli Motor Group's ROCE against it's prior returns. If you'd like to look at how Keli Motor Group has performed in the past in other metrics, you can view this free graph of Keli Motor Group's past earnings, revenue and cash flow.

So How Is Keli Motor Group's ROCE Trending?

When we looked at the ROCE trend at Keli Motor Group, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.8% from 9.4% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Keli Motor Group is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 30% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing Keli Motor Group, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.