Wuxi Double Elephant Micro Fibre MaterialLtd (SZSE:002395) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, we've noticed some promising trends at Wuxi Double Elephant Micro Fibre MaterialLtd (SZSE:002395) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Wuxi Double Elephant Micro Fibre MaterialLtd:

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

0.052 = CN¥83m ÷ (CN¥2.4b - CN¥767m) (Based on the trailing twelve months to September 2024).

Therefore, Wuxi Double Elephant Micro Fibre MaterialLtd has an ROCE of 5.2%. Even though it's in line with the industry average of 5.4%, it's still a low return by itself.

View our latest analysis for Wuxi Double Elephant Micro Fibre MaterialLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wuxi Double Elephant Micro Fibre MaterialLtd's ROCE against it's prior returns. If you'd like to look at how Wuxi Double Elephant Micro Fibre MaterialLtd has performed in the past in other metrics, you can view this free graph of Wuxi Double Elephant Micro Fibre MaterialLtd's past earnings, revenue and cash flow.

What Can We Tell From Wuxi Double Elephant Micro Fibre MaterialLtd's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.2%. The amount of capital employed has increased too, by 89%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Wuxi Double Elephant Micro Fibre MaterialLtd is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Wuxi Double Elephant Micro Fibre MaterialLtd does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.