Chongqing Baiya Sanitary Products (SZSE:003006) Hasn't Managed To Accelerate Its Returns

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. 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. That's why when we briefly looked at Chongqing Baiya Sanitary Products' (SZSE:003006) ROCE trend, we were pretty happy with what we saw.

Understanding 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. Analysts use this formula to calculate it for Chongqing Baiya Sanitary Products:

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

0.18 = CN¥246m ÷ (CN¥1.9b - CN¥479m) (Based on the trailing twelve months to December 2023).

So, Chongqing Baiya Sanitary Products has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Personal Products industry.

Check out our latest analysis for Chongqing Baiya Sanitary Products

Above you can see how the current ROCE for Chongqing Baiya Sanitary Products 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 Chongqing Baiya Sanitary Products for free.

What Does the ROCE Trend For Chongqing Baiya Sanitary Products Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 126% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Chongqing Baiya Sanitary Products has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Chongqing Baiya Sanitary Products' ROCE

In the end, Chongqing Baiya Sanitary Products has proven its ability to adequately reinvest capital at good rates of return. However, over the last three years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

On a final note, we've found 1 warning sign for Chongqing Baiya Sanitary Products that we think you should be aware of.

While Chongqing Baiya Sanitary Products isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.