Many Would Be Envious Of DeHua TB New Decoration MaterialLtd's (SZSE:002043) Excellent Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over DeHua TB New Decoration MaterialLtd's (SZSE:002043) trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for DeHua TB New Decoration MaterialLtd, this is the formula:

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

0.23 = CN¥777m ÷ (CN¥5.3b - CN¥1.9b) (Based on the trailing twelve months to March 2024).

Thus, DeHua TB New Decoration MaterialLtd has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Forestry industry average of 6.3%.

View our latest analysis for DeHua TB New Decoration MaterialLtd

Above you can see how the current ROCE for DeHua TB New Decoration MaterialLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for DeHua TB New Decoration MaterialLtd .

What Does the ROCE Trend For DeHua TB New Decoration MaterialLtd Tell Us?

We'd be pretty happy with returns on capital like DeHua TB New Decoration MaterialLtd. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 92% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If DeHua TB New Decoration MaterialLtd can keep this up, we'd be very optimistic about its future.

The Bottom Line

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 113% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for DeHua TB New Decoration MaterialLtd you'll probably want to know about.

DeHua TB New Decoration MaterialLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

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