Returns On Capital Are Showing Encouraging Signs At Weihai Guangwei Composites (SZSE:300699)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Weihai Guangwei Composites (SZSE:300699) 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. The formula for this calculation on Weihai Guangwei Composites is:

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

0.17 = CN¥992m ÷ (CN¥6.6b - CN¥783m) (Based on the trailing twelve months to December 2023).

Therefore, Weihai Guangwei Composites has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Chemicals industry.

Check out our latest analysis for Weihai Guangwei Composites

Above you can see how the current ROCE for Weihai Guangwei Composites 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 Weihai Guangwei Composites .

The Trend Of ROCE

Investors would be pleased with what's happening at Weihai Guangwei Composites. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 86%. So we're very much inspired by what we're seeing at Weihai Guangwei Composites thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Weihai Guangwei Composites is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 26% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

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

While Weihai Guangwei Composites isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.