Some Investors May Be Worried About Guanglian Aviation Industry's (SZSE:300900) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Guanglian Aviation Industry (SZSE:300900) 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?

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 Guanglian Aviation Industry:

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

0.043 = CN¥151m ÷ (CN¥4.5b - CN¥983m) (Based on the trailing twelve months to March 2024).

Therefore, Guanglian Aviation Industry has an ROCE of 4.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.3%.

View our latest analysis for Guanglian Aviation Industry

Above you can see how the current ROCE for Guanglian Aviation Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Guanglian Aviation Industry .

How Are Returns Trending?

On the surface, the trend of ROCE at Guanglian Aviation Industry doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.3% from 13% 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Guanglian Aviation Industry's ROCE

While returns have fallen for Guanglian Aviation Industry in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 29% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Guanglian Aviation Industry does have some risks, we noticed 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com