Ningbo Peacebird FashionLtd (SHSE:603877) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Ningbo Peacebird FashionLtd (SHSE:603877) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Ningbo Peacebird FashionLtd is:

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

0.013 = CN¥68m ÷ (CN¥8.0b - CN¥2.5b) (Based on the trailing twelve months to September 2023).

So, Ningbo Peacebird FashionLtd has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 5.0%.

See our latest analysis for Ningbo Peacebird FashionLtd

Above you can see how the current ROCE for Ningbo Peacebird FashionLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ningbo Peacebird FashionLtd for free.

What Does the ROCE Trend For Ningbo Peacebird FashionLtd Tell Us?

We weren't thrilled with the trend because Ningbo Peacebird FashionLtd's ROCE has reduced by 92% over the last five years, while the business employed 43% more capital. That being said, Ningbo Peacebird FashionLtd raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Ningbo Peacebird FashionLtd might not have received a full period of earnings contribution from it.

What We Can Learn From Ningbo Peacebird FashionLtd's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Ningbo Peacebird FashionLtd have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 12% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Ningbo Peacebird FashionLtd, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.