Here's What G-bits Network Technology (Xiamen)'s (SHSE:603444) Strong Returns On Capital Mean

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at G-bits Network Technology (Xiamen)'s (SHSE:603444) ROCE trend, we were very happy with what we saw.

Understanding 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 G-bits Network Technology (Xiamen), this is the formula:

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

0.25 = CN¥1.4b ÷ (CN¥7.0b - CN¥1.4b) (Based on the trailing twelve months to March 2024).

Therefore, G-bits Network Technology (Xiamen) has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 5.4% earned by companies in a similar industry.

View our latest analysis for G-bits Network Technology (Xiamen)

Above you can see how the current ROCE for G-bits Network Technology (Xiamen) 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 G-bits Network Technology (Xiamen) .

So How Is G-bits Network Technology (Xiamen)'s ROCE Trending?

We'd be pretty happy with returns on capital like G-bits Network Technology (Xiamen). Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 60% 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. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From G-bits Network Technology (Xiamen)'s ROCE

G-bits Network Technology (Xiamen) has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last five years the stock has declined 11%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

While G-bits Network Technology (Xiamen) looks impressive, no company is worth an infinite price. The intrinsic value infographic for 603444 helps visualize whether it is currently trading for a fair price.

G-bits Network Technology (Xiamen) 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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