Capital Allocation Trends At SF Oilless Bearing Group (SZSE:300817) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. 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 SF Oilless Bearing Group (SZSE:300817) and its ROCE trend, we weren't exactly thrilled.

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 SF Oilless Bearing Group is:

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

0.06 = CN¥64m ÷ (CN¥1.3b - CN¥214m) (Based on the trailing twelve months to September 2023).

Therefore, SF Oilless Bearing Group has an ROCE of 6.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.0%.

Check out our latest analysis for SF Oilless Bearing Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for SF Oilless Bearing Group's ROCE against it's prior returns. If you'd like to look at how SF Oilless Bearing Group has performed in the past in other metrics, you can view this free graph of SF Oilless Bearing Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at SF Oilless Bearing Group doesn't inspire confidence. To be more specific, ROCE has fallen from 19% over the last five years. However it looks like SF Oilless Bearing Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On SF Oilless Bearing Group's ROCE

In summary, SF Oilless Bearing Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 11% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to know some of the risks facing SF Oilless Bearing Group we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.

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.