SF Oilless Bearing Group (SZSE:300817) Might Be Having Difficulty Using Its Capital Effectively

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think SF Oilless Bearing Group (SZSE:300817) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 SF Oilless Bearing Group, this is the formula:

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

0.064 = CN¥69m ÷ (CN¥1.3b - CN¥209m) (Based on the trailing twelve months to September 2024).

Thus, SF Oilless Bearing Group has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.2%.

View 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of SF Oilless Bearing Group.

How Are Returns Trending?

In terms of SF Oilless Bearing Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.4% from 16% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SF Oilless Bearing Group. These trends are starting to be recognized by investors since the stock has delivered a 0.5% gain to shareholders who've held over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One final note, you should learn about the 3 warning signs we've spotted with SF Oilless Bearing Group (including 2 which can't be ignored) .

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.