Investors Shouldn't Overlook The Favourable Returns On Capital At Shenzhen New Industries Biomedical Engineering (SZSE:300832)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Shenzhen New Industries Biomedical Engineering's (SZSE:300832) trend of ROCE, we really liked what we saw.

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. To calculate this metric for Shenzhen New Industries Biomedical Engineering, this is the formula:

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

0.24 = CN¥2.0b ÷ (CN¥8.8b - CN¥599m) (Based on the trailing twelve months to September 2024).

So, Shenzhen New Industries Biomedical Engineering has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 5.9% earned by companies in a similar industry.

See our latest analysis for Shenzhen New Industries Biomedical Engineering

Above you can see how the current ROCE for Shenzhen New Industries Biomedical Engineering compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shenzhen New Industries Biomedical Engineering .

What Does the ROCE Trend For Shenzhen New Industries Biomedical Engineering Tell Us?

It's hard not to be impressed by Shenzhen New Industries Biomedical Engineering's returns on capital. The company has consistently earned 24% for the last five years, and the capital employed within the business has risen 179% in that time. Now considering ROCE is an attractive 24%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 1 warning sign for Shenzhen New Industries Biomedical Engineering that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.