Returns On Capital At Kale Environment Technology (Shanghai) (SZSE:301070) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 investigating Kale Environment Technology (Shanghai) (SZSE:301070), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Kale Environment Technology (Shanghai) is:

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

0.015 = CN¥13m ÷ (CN¥1.0b - CN¥147m) (Based on the trailing twelve months to March 2024).

So, Kale Environment Technology (Shanghai) has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.6%.

Check out our latest analysis for Kale Environment Technology (Shanghai)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kale Environment Technology (Shanghai)'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 Kale Environment Technology (Shanghai).

So How Is Kale Environment Technology (Shanghai)'s ROCE Trending?

In terms of Kale Environment Technology (Shanghai)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.5% from 30% 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 Bottom Line On Kale Environment Technology (Shanghai)'s ROCE

While returns have fallen for Kale Environment Technology (Shanghai) in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 5.0% over the last year. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One final note, you should learn about the 5 warning signs we've spotted with Kale Environment Technology (Shanghai) (including 3 which are concerning) .

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.

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