Beijing Sanfo Outdoor Products' (SZSE:002780) Returns On Capital Are Heading Higher

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Beijing Sanfo Outdoor Products (SZSE:002780) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Beijing Sanfo Outdoor Products is:

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

0.063 = CN¥49m ÷ (CN¥1.1b - CN¥287m) (Based on the trailing twelve months to March 2024).

Therefore, Beijing Sanfo Outdoor Products has an ROCE of 6.3%. On its own that's a low return, but compared to the average of 4.5% generated by the Specialty Retail industry, it's much better.

Check out our latest analysis for Beijing Sanfo Outdoor Products

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 Beijing Sanfo Outdoor Products has performed in the past in other metrics, you can view this free graph of Beijing Sanfo Outdoor Products' past earnings, revenue and cash flow.

What Does the ROCE Trend For Beijing Sanfo Outdoor Products Tell Us?

Beijing Sanfo Outdoor Products' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 722% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To bring it all together, Beijing Sanfo Outdoor Products has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 53% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Beijing Sanfo Outdoor Products you'll probably want to know about.

While Beijing Sanfo Outdoor Products 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.