UE Furniture (SHSE:603600) Is Doing The Right Things To Multiply Its Share Price

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at UE Furniture (SHSE:603600) so let's look a bit deeper.

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. To calculate this metric for UE Furniture, this is the formula:

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

0.11 = CN¥241m ÷ (CN¥3.1b - CN¥987m) (Based on the trailing twelve months to September 2023).

Therefore, UE Furniture has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Commercial Services industry.

See our latest analysis for UE Furniture

Above you can see how the current ROCE for UE Furniture compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for UE Furniture .

So How Is UE Furniture's ROCE Trending?

The trends we've noticed at UE Furniture are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 89% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On UE Furniture's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what UE Furniture has. Considering the stock has delivered 29% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching UE Furniture, you might be interested to know about the 3 warning signs that our analysis has discovered.

While UE Furniture isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.