Beijing SOJO Electric (SZSE:300444) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Beijing SOJO Electric's (SZSE:300444) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Beijing SOJO Electric:

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

0.081 = CN¥222m ÷ (CN¥5.2b - CN¥2.5b) (Based on the trailing twelve months to June 2024).

Thus, Beijing SOJO Electric has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Electrical industry average of 5.9%.

View our latest analysis for Beijing SOJO Electric

Above you can see how the current ROCE for Beijing SOJO Electric compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Beijing SOJO Electric for free.

What Does the ROCE Trend For Beijing SOJO Electric Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.1%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Beijing SOJO Electric thanks to its ability to profitably reinvest capital.

Another thing to note, Beijing SOJO Electric has a high ratio of current liabilities to total assets of 48%. 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.

The Bottom Line On Beijing SOJO Electric's ROCE

To sum it up, Beijing SOJO Electric has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 17% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

On a separate note, we've found 1 warning sign for Beijing SOJO Electric you'll probably want to know about.

While Beijing SOJO Electric 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.