Bear Electric ApplianceLtd (SZSE:002959) Might Be Having Difficulty Using Its Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Having said that, from a first glance at Bear Electric ApplianceLtd (SZSE:002959) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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 Bear Electric ApplianceLtd, this is the formula:

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

0.085 = CN¥286m ÷ (CN¥5.5b - CN¥2.1b) (Based on the trailing twelve months to September 2024).

Thus, Bear Electric ApplianceLtd has an ROCE of 8.5%. On its own, that's a low figure but it's around the 9.6% average generated by the Consumer Durables industry.

Check out our latest analysis for Bear Electric ApplianceLtd

Above you can see how the current ROCE for Bear Electric ApplianceLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Bear Electric ApplianceLtd .

The Trend Of ROCE

When we looked at the ROCE trend at Bear Electric ApplianceLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.5% from 18% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Bear Electric ApplianceLtd's ROCE

In summary, Bear Electric ApplianceLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Bear Electric ApplianceLtd we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While Bear Electric ApplianceLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

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.