Runben Biotechnology (SHSE:603193) Is Reinvesting At Lower Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Runben Biotechnology (SHSE:603193) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Runben Biotechnology is:

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

0.15 = CN¥300m ÷ (CN¥2.2b - CN¥175m) (Based on the trailing twelve months to September 2024).

So, Runben Biotechnology has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Personal Products industry.

View our latest analysis for Runben Biotechnology

In the above chart we have measured Runben Biotechnology'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 Runben Biotechnology for free.

What Does the ROCE Trend For Runben Biotechnology Tell Us?

When we looked at the ROCE trend at Runben Biotechnology, we didn't gain much confidence. Over the last four years, returns on capital have decreased to 15% from 41% four years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Runben Biotechnology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Runben Biotechnology. And long term investors must be optimistic going forward because the stock has returned a huge 123% to shareholders in the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Runben Biotechnology could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 603193 on our platform quite valuable.

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.

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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.