Slowing Rates Of Return At Ningbo Fujia Industrial (SHSE:603219) Leave Little Room For Excitement

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Ningbo Fujia Industrial's (SHSE:603219) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ningbo Fujia Industrial:

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

0.13 = CN¥215m ÷ (CN¥3.0b - CN¥1.4b) (Based on the trailing twelve months to September 2024).

Thus, Ningbo Fujia Industrial has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Consumer Durables industry.

View our latest analysis for Ningbo Fujia Industrial

Above you can see how the current ROCE for Ningbo Fujia Industrial compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ningbo Fujia Industrial .

What Does the ROCE Trend For Ningbo Fujia Industrial Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 168% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Ningbo Fujia Industrial has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a separate but related note, it's important to know that Ningbo Fujia Industrial has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. 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.

Our Take On Ningbo Fujia Industrial's ROCE

The main thing to remember is that Ningbo Fujia Industrial has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 8.1% over the last three years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you want to continue researching Ningbo Fujia Industrial, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Ningbo Fujia Industrial 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.