Slowing Rates Of Return At Beijing Easpring Material TechnologyLTD (SZSE:300073) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 Beijing Easpring Material TechnologyLTD (SZSE:300073) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Beijing Easpring Material TechnologyLTD:

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

0.085 = CN¥1.2b ÷ (CN¥16b - CN¥2.5b) (Based on the trailing twelve months to June 2024).

So, Beijing Easpring Material TechnologyLTD has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Electrical industry average of 6.0%.

View our latest analysis for Beijing Easpring Material TechnologyLTD

In the above chart we have measured Beijing Easpring Material 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 Beijing Easpring Material TechnologyLTD .

So How Is Beijing Easpring Material TechnologyLTD's ROCE Trending?

The returns on capital haven't changed much for Beijing Easpring Material TechnologyLTD in recent years. The company has consistently earned 8.5% for the last five years, and the capital employed within the business has risen 292% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Beijing Easpring Material TechnologyLTD's ROCE

Long story short, while Beijing Easpring Material TechnologyLTD has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 20% to shareholders over the last five years. 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 Beijing Easpring Material TechnologyLTD, 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.