ORG TechnologyLtd's (SZSE:002701) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. 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 ORG TechnologyLtd's (SZSE:002701) trend of ROCE, we 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. The formula for this calculation on ORG TechnologyLtd is:

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

0.11 = CN¥1.2b ÷ (CN¥18b - CN¥7.9b) (Based on the trailing twelve months to June 2024).

So, ORG TechnologyLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 5.3% it's much better.

See our latest analysis for ORG TechnologyLtd

Above you can see how the current ROCE for ORG TechnologyLtd 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 ORG TechnologyLtd .

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 28% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that ORG TechnologyLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a separate but related note, it's important to know that ORG TechnologyLtd has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On ORG TechnologyLtd's ROCE

In the end, ORG TechnologyLtd has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 13% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Like most companies, ORG TechnologyLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.