Investors Will Want Ningbo Boway Alloy Material's (SHSE:601137) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Ningbo Boway Alloy Material (SHSE:601137) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Ningbo Boway Alloy Material, this is the formula:

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

0.18 = CN¥1.8b ÷ (CN¥15b - CN¥5.3b) (Based on the trailing twelve months to March 2024).

Therefore, Ningbo Boway Alloy Material has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Metals and Mining industry.

View our latest analysis for Ningbo Boway Alloy Material

Above you can see how the current ROCE for Ningbo Boway Alloy Material compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ningbo Boway Alloy Material .

How Are Returns Trending?

Investors would be pleased with what's happening at Ningbo Boway Alloy Material. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 163% more capital is being employed now too. 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.

In Conclusion...

To sum it up, Ningbo Boway Alloy Material has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 135% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Ningbo Boway Alloy Material does have some risks though, and we've spotted 2 warning signs for Ningbo Boway Alloy Material that you might be interested in.

While Ningbo Boway Alloy Material may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.