The Return Trends At Bestway Marine & Energy TechnologyLtd (SZSE:300008) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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 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. 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)

0.079 = CN¥173m ÷ (CN¥4.4b - CN¥2.2b) (Based on the trailing twelve months to March 2024).

Thus, Bestway Marine & Energy TechnologyLtd has an ROCE of 7.9%. In absolute terms, that's a low return, but it's much better than the Construction industry average of 6.5%.

View our latest analysis for Bestway Marine & Energy TechnologyLtd

In the above chart we have measured Bestway Marine & Energy TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Bestway Marine & Energy TechnologyLtd .

So How Is Bestway Marine & Energy TechnologyLtd's ROCE Trending?

We're delighted to see that Bestway Marine & Energy TechnologyLtd is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 7.9% which is a sight for sore eyes. In addition to that, Bestway Marine & Energy TechnologyLtd is employing 185% 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 50%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

In Conclusion...

Overall, Bestway Marine & Energy TechnologyLtd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Considering the stock has delivered 29% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Bestway Marine & Energy TechnologyLtd does have some risks though, and we've spotted 1 warning sign for Bestway Marine & Energy TechnologyLtd that you might be interested in.

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.

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