Returns On Capital At Xi'an Triangle DefenseLtd (SZSE:300775) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at Xi'an Triangle DefenseLtd's (SZSE:300775) ROCE trend, we were pretty happy with 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. Analysts use this formula to calculate it for Xi'an Triangle DefenseLtd:

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

0.12 = CN¥797m ÷ (CN¥8.8b - CN¥2.1b) (Based on the trailing twelve months to March 2024).

Thus, Xi'an Triangle DefenseLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 4.4% generated by the Aerospace & Defense industry.

See our latest analysis for Xi'an Triangle DefenseLtd

In the above chart we have measured Xi'an Triangle DefenseLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Xi'an Triangle DefenseLtd for free.

So How Is Xi'an Triangle DefenseLtd's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 350% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that Xi'an Triangle DefenseLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, Xi'an Triangle DefenseLtd has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 151% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for Xi'an Triangle DefenseLtd you'll probably want to know about.

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.