Returns On Capital Are Showing Encouraging Signs At Guangbo Group Stock (SZSE:002103)

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Guangbo Group Stock's (SZSE:002103) returns on capital, so let's have a look.

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 Guangbo Group Stock, this is the formula:

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

0.12 = CN¥115m ÷ (CN¥1.6b - CN¥619m) (Based on the trailing twelve months to March 2024).

Therefore, Guangbo Group Stock has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 4.8% generated by the Commercial Services industry.

View our latest analysis for Guangbo Group Stock

Historical performance is a great place to start when researching a stock so above you can see the gauge for Guangbo Group Stock's ROCE against it's prior returns. If you're interested in investigating Guangbo Group Stock's past further, check out this free graph covering Guangbo Group Stock's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Guangbo Group Stock's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 42% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

As discussed above, Guangbo Group Stock appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 7.2% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002103 on our platform that is definitely worth checking out.

While Guangbo Group Stock may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.