Be Wary Of Opple LightingLTD (SHSE:603515) And Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Opple LightingLTD (SHSE:603515) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Opple LightingLTD is:

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

0.12 = CN¥786m ÷ (CN¥9.5b - CN¥3.0b) (Based on the trailing twelve months to September 2023).

So, Opple LightingLTD has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Household Products industry average of 4.8% it's much better.

See our latest analysis for Opple LightingLTD

In the above chart we have measured Opple LightingLTD's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Opple LightingLTD .

What Can We Tell From Opple LightingLTD's ROCE Trend?

When we looked at the ROCE trend at Opple LightingLTD, we didn't gain much confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 12%. However it looks like Opple LightingLTD 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.

The Bottom Line On Opple LightingLTD's ROCE

To conclude, we've found that Opple LightingLTD is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 47% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Opple LightingLTD that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.