Beijing Scitop Bio-tech (SZSE:300858) Will Want To Turn Around Its Return Trends

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Beijing Scitop Bio-tech (SZSE:300858), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Beijing Scitop Bio-tech is:

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

0.032 = CN¥57m ÷ (CN¥1.9b - CN¥54m) (Based on the trailing twelve months to September 2024).

Therefore, Beijing Scitop Bio-tech has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.

View 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.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Beijing Scitop Bio-tech, we didn't gain much confidence. Around five years ago the returns on capital were 27%, but since then they've fallen to 3.2%. However it looks like Beijing Scitop Bio-tech might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Beijing Scitop Bio-tech has done well to pay down its current liabilities to 2.9% of total assets. That could partly explain why the ROCE has dropped. 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

Bringing it all together, while we're somewhat encouraged by Beijing Scitop Bio-tech's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 15% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to continue researching Beijing Scitop Bio-tech, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Beijing Scitop Bio-tech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.