The Returns On Capital At Ecovacs Robotics (SHSE:603486) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Ecovacs Robotics (SHSE:603486) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Ecovacs Robotics:

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

0.063 = CN¥520m ÷ (CN¥13b - CN¥5.0b) (Based on the trailing twelve months to June 2024).

Thus, Ecovacs Robotics has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.7%.

See our latest analysis for Ecovacs Robotics

Above you can see how the current ROCE for Ecovacs Robotics 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 Ecovacs Robotics .

What Can We Tell From Ecovacs Robotics' ROCE Trend?

In terms of Ecovacs Robotics' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Ecovacs Robotics' ROCE

To conclude, we've found that Ecovacs Robotics is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 179% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.