Qingdao NovelBeam TechnologyLtd (SHSE:688677) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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 Qingdao NovelBeam TechnologyLtd (SHSE:688677) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Qingdao NovelBeam TechnologyLtd:

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

0.12 = CN¥161m ÷ (CN¥1.4b - CN¥97m) (Based on the trailing twelve months to December 2023).

Thus, Qingdao NovelBeam TechnologyLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Medical Equipment industry.

See our latest analysis for Qingdao NovelBeam TechnologyLtd

In the above chart we have measured Qingdao NovelBeam TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Qingdao NovelBeam TechnologyLtd for free.

So How Is Qingdao NovelBeam TechnologyLtd's ROCE Trending?

When we looked at the ROCE trend at Qingdao NovelBeam TechnologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 29%, but since then they've fallen to 12%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Qingdao NovelBeam TechnologyLtd's ROCE

Bringing it all together, while we're somewhat encouraged by Qingdao NovelBeam TechnologyLtd's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 2.1% in the last three years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Qingdao NovelBeam TechnologyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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.