Shanghai Shuixing Home Textile's (SHSE:603365) Returns Have Hit A Wall

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Shanghai Shuixing Home Textile's (SHSE:603365) trend of ROCE, we liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Shanghai Shuixing Home Textile, this is the formula:

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

0.13 = CN¥391m ÷ (CN¥3.7b - CN¥656m) (Based on the trailing twelve months to March 2024).

So, Shanghai Shuixing Home Textile has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Luxury industry.

View our latest analysis for Shanghai Shuixing Home Textile

Above you can see how the current ROCE for Shanghai Shuixing Home Textile compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai Shuixing Home Textile .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 34% more capital into its operations. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Bottom Line On Shanghai Shuixing Home Textile's ROCE

The main thing to remember is that Shanghai Shuixing Home Textile has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 7.5% over the last five years for shareholders who have owned the stock in this period. So to determine if Shanghai Shuixing Home Textile is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing, we've spotted 1 warning sign facing Shanghai Shuixing Home Textile that you might find interesting.

While Shanghai Shuixing Home Textile 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com