Returns At Fujian Dongbai (Group)Ltd (SHSE:600693) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Fujian Dongbai (Group)Ltd (SHSE:600693) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Fujian Dongbai (Group)Ltd, this is the formula:

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

0.067 = CN¥593m ÷ (CN¥14b - CN¥5.6b) (Based on the trailing twelve months to March 2024).

Thus, Fujian Dongbai (Group)Ltd has an ROCE of 6.7%. On its own that's a low return, but compared to the average of 4.6% generated by the Multiline Retail industry, it's much better.

View our latest analysis for Fujian Dongbai (Group)Ltd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Fujian Dongbai (Group)Ltd has performed in the past in other metrics, you can view this free graph of Fujian Dongbai (Group)Ltd's past earnings, revenue and cash flow.

So How Is Fujian Dongbai (Group)Ltd's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 6.7%. The amount of capital employed has increased too, by 71%. So we're very much inspired by what we're seeing at Fujian Dongbai (Group)Ltd thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Fujian Dongbai (Group)Ltd is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 44% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Fujian Dongbai (Group)Ltd (including 2 which are a bit concerning) .

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.