Beijing Scitop Bio-tech (SZSE:300858) Is Reinvesting At Lower Rates Of Return

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. In light of that, when we looked at Beijing Scitop Bio-tech (SZSE:300858) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Beijing Scitop Bio-tech, this is the formula:

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

0.039 = CN¥68m ÷ (CN¥1.8b - CN¥56m) (Based on the trailing twelve months to September 2023).

Thus, Beijing Scitop Bio-tech has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.6%.

See our latest analysis for Beijing Scitop Bio-tech

Above you can see how the current ROCE for Beijing Scitop Bio-tech 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 Scitop Bio-tech for free.

The Trend Of ROCE

The trend of ROCE doesn't look fantastic because it's fallen from 32% five years ago, while the business's capital employed increased by 470%. Usually this isn't ideal, but given Beijing Scitop Bio-tech conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Beijing Scitop Bio-tech probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a side note, Beijing Scitop Bio-tech has done well to pay down its current liabilities to 3.1% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Beijing Scitop Bio-tech's ROCE

In summary, we're somewhat concerned by Beijing Scitop Bio-tech's diminishing returns on increasing amounts of capital. And, the stock has remained flat over the last three years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

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

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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.