NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (SZSE:300826) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (SZSE:300826), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd:

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

0.047 = CN¥71m ÷ (CN¥2.5b - CN¥969m) (Based on the trailing twelve months to September 2023).

Thus, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has an ROCE of 4.7%. On its own, that's a low figure but it's around the 5.7% average generated by the Professional Services industry.

View our latest analysis for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's ROCE against it's prior returns. If you'd like to look at how NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has performed in the past in other metrics, you can view this free graph of NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 4.7%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has done well to pay down its current liabilities to 39% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's ROCE

In summary, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 18% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has the makings of a multi-bagger.

If you'd like to know more about NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd, we've spotted 4 warning signs, and 1 of them can't be ignored.

While NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd 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.