China Tianying (SZSE:000035) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at China Tianying (SZSE:000035) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for China Tianying:

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

0.05 = CN¥1.0b ÷ (CN¥28b - CN¥8.2b) (Based on the trailing twelve months to June 2024).

Thus, China Tianying has an ROCE of 5.0%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 5.6%.

Check out our latest analysis for China Tianying

In the above chart we have measured China Tianying's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for China Tianying .

What Does the ROCE Trend For China Tianying Tell Us?

China Tianying has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 58%. The company is now earning CN¥0.05 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 30% less than it was five years ago, which can be indicative of a business that's improving its efficiency. China Tianying may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On China Tianying's ROCE

In summary, it's great to see that China Tianying has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, China Tianying does come with some risks, and we've found 1 warning sign that you should be aware of.

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.