We Like These Underlying Return On Capital Trends At Baotou Dongbao Bio-TechLtd (SZSE:300239)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Baotou Dongbao Bio-TechLtd's (SZSE:300239) returns on capital, so let's have a look.

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 Baotou Dongbao Bio-TechLtd, this is the formula:

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

0.046 = CN¥114m ÷ (CN¥2.8b - CN¥326m) (Based on the trailing twelve months to June 2024).

Therefore, Baotou Dongbao Bio-TechLtd has an ROCE of 4.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

See our latest analysis for Baotou Dongbao Bio-TechLtd

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

So How Is Baotou Dongbao Bio-TechLtd's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.6%. The amount of capital employed has increased too, by 135%. 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 Baotou Dongbao Bio-TechLtd's ROCE

To sum it up, Baotou Dongbao Bio-TechLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 33% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 300239 that compares the share price and estimated value.

While Baotou Dongbao Bio-TechLtd 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.

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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.