Returns On Capital Signal Tricky Times Ahead For Beijing Roborock Technology (SHSE:688169)

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after briefly looking over the numbers, we don't think Beijing Roborock Technology (SHSE:688169) 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. The formula for this calculation on Beijing Roborock Technology is:

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

0.17 = CN¥2.1b ÷ (CN¥17b - CN¥4.3b) (Based on the trailing twelve months to September 2024).

So, Beijing Roborock Technology has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Consumer Durables industry.

Check out our latest analysis for Beijing Roborock Technology

Above you can see how the current ROCE for Beijing Roborock Technology 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 Beijing Roborock Technology for free.

What The Trend Of ROCE Can Tell Us

In terms of Beijing Roborock Technology's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 59%, but since then they've fallen to 17%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Beijing Roborock Technology. However, despite the promising trends, the stock has fallen 31% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you'd like to know about the risks facing Beijing Roborock Technology, we've discovered 1 warning sign that you should be aware of.

While Beijing Roborock Technology 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.