Return Trends At Beijing China Sciences Runyu Environmental Technology (SZSE:301175) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Beijing China Sciences Runyu Environmental Technology (SZSE:301175) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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 Beijing China Sciences Runyu Environmental Technology:

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

0.064 = CN¥403m ÷ (CN¥7.5b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

So, Beijing China Sciences Runyu Environmental Technology has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 4.8%.

View our latest analysis for Beijing China Sciences Runyu Environmental Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Beijing China Sciences Runyu Environmental Technology's past further, check out this free graph covering Beijing China Sciences Runyu Environmental Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Beijing China Sciences Runyu Environmental Technology Tell Us?

In terms of Beijing China Sciences Runyu Environmental Technology's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.4% for the last five years, and the capital employed within the business has risen 233% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 15% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In summary, Beijing China Sciences Runyu Environmental Technology has simply been reinvesting capital and generating the same low rate of return as before. And in the last year, the stock has given away 25% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing Beijing China Sciences Runyu Environmental Technology, we've discovered 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.