Fujian SBS Zipper Science&Technology (SZSE:002098) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Fujian SBS Zipper Science&Technology (SZSE:002098) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Fujian SBS Zipper Science&Technology, this is the formula:

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

0.095 = CN¥116m ÷ (CN¥1.9b - CN¥656m) (Based on the trailing twelve months to September 2023).

Thus, Fujian SBS Zipper Science&Technology has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 5.9% generated by the Luxury industry, it's much better.

Check out our latest analysis for Fujian SBS Zipper Science&Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fujian SBS Zipper Science&Technology's ROCE against it's prior returns. If you'd like to look at how Fujian SBS Zipper Science&Technology has performed in the past in other metrics, you can view this free graph of Fujian SBS Zipper Science&Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 37% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Bottom Line On Fujian SBS Zipper Science&Technology's ROCE

Overall, we're not ecstatic to see Fujian SBS Zipper Science&Technology reducing the amount of capital it employs in the business. Since the stock has declined 52% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you're still interested in Fujian SBS Zipper Science&Technology it's worth checking out our FREE intrinsic value approximation for 002098 to see if it's trading at an attractive price in other respects.

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.