Whirlpool China (SHSE:600983) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Whirlpool China (SHSE:600983) so let's look a bit deeper.

What Is 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. To calculate this metric for Whirlpool China, this is the formula:

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

0.03 = CN¥77m ÷ (CN¥4.9b - CN¥2.3b) (Based on the trailing twelve months to September 2024).

Therefore, Whirlpool China has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 9.6%.

View our latest analysis for Whirlpool China

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 Whirlpool China's past further, check out this free graph covering Whirlpool China's past earnings, revenue and cash flow.

So How Is Whirlpool China's ROCE Trending?

It's great to see that Whirlpool China has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 3.0% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 37% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

On a side note, Whirlpool China's current liabilities are still rather high at 47% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

From what we've seen above, Whirlpool China has managed to increase it's returns on capital all the while reducing it's capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 88% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Whirlpool China does have some risks though, and we've spotted 2 warning signs for Whirlpool China that you might be interested in.

While Whirlpool China 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.