Investors Will Want Bestway Marine & Energy TechnologyLtd's (SZSE:300008) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Bestway Marine & Energy TechnologyLtd (SZSE:300008) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Bestway Marine & Energy TechnologyLtd, this is the formula:

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

0.062 = CN¥138m ÷ (CN¥4.2b - CN¥1.9b) (Based on the trailing twelve months to September 2024).

Thus, Bestway Marine & Energy TechnologyLtd has an ROCE of 6.2%. Even though it's in line with the industry average of 6.1%, it's still a low return by itself.

See our latest analysis for Bestway Marine & Energy 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're interested in investigating Bestway Marine & Energy TechnologyLtd's past further, check out this free graph covering Bestway Marine & Energy TechnologyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Bestway Marine & Energy TechnologyLtd has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 6.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Bestway Marine & Energy TechnologyLtd is utilizing 225% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Bestway Marine & Energy TechnologyLtd has decreased current liabilities to 46% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Bestway Marine & Energy TechnologyLtd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Bestway Marine & Energy TechnologyLtd's ROCE

To the delight of most shareholders, Bestway Marine & Energy TechnologyLtd has now broken into profitability. And with a respectable 92% 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. In light of that, we think it's worth looking further into this stock because if Bestway Marine & Energy TechnologyLtd can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Bestway Marine & Energy TechnologyLtd, we've discovered 1 warning sign that you should be aware of.

While Bestway Marine & Energy 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.

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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.