Returns At Bestway Marine & Energy TechnologyLtd (SZSE:300008) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Bestway Marine & Energy TechnologyLtd (SZSE:300008) looks quite promising in regards to its trends of return on capital.

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 Bestway Marine & Energy TechnologyLtd is:

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

0.06 = CN¥131m ÷ (CN¥4.0b - CN¥1.9b) (Based on the trailing twelve months to September 2023).

So, Bestway Marine & Energy TechnologyLtd has an ROCE of 6.0%. On its own, that's a low figure but it's around the 6.8% average generated by the Construction industry.

See our latest analysis for Bestway Marine & Energy TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bestway Marine & Energy TechnologyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Bestway Marine & Energy TechnologyLtd.

What Does the ROCE Trend For Bestway Marine & Energy TechnologyLtd Tell Us?

The fact that Bestway Marine & Energy TechnologyLtd is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 6.0% which is a sight for sore eyes. In addition to that, Bestway Marine & Energy TechnologyLtd is employing 60% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, Bestway Marine & Energy TechnologyLtd's current liabilities are still rather high at 46% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Bestway Marine & Energy TechnologyLtd's ROCE

Long story short, we're delighted to see that Bestway Marine & Energy TechnologyLtd's reinvestment activities have paid off and the company is now profitable. Since the stock has only returned 2.5% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

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.

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.