Shareholders Would Enjoy A Repeat Of Chongqing Baiya Sanitary Products' (SZSE:003006) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 looked at the ROCE trend of Chongqing Baiya Sanitary Products (SZSE:003006) we really liked what we saw.

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. To calculate this metric for Chongqing Baiya Sanitary Products, this is the formula:

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

0.22 = CN¥299m ÷ (CN¥1.9b - CN¥496m) (Based on the trailing twelve months to June 2024).

Thus, Chongqing Baiya Sanitary Products has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 8.2%.

View 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.

The Trend Of ROCE

Chongqing Baiya Sanitary Products is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 105%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Chongqing Baiya Sanitary Products' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Chongqing Baiya Sanitary Products has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 37% return over the last three years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Chongqing Baiya Sanitary Products that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.