Chengdu Fusen Noble-House IndustrialLtd (SZSE:002818) Will Want To Turn Around Its Return Trends

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Chengdu Fusen Noble-House IndustrialLtd (SZSE:002818) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Chengdu Fusen Noble-House IndustrialLtd is:

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

0.14 = CN¥880m ÷ (CN¥7.5b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

So, Chengdu Fusen Noble-House IndustrialLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 4.4% generated by the Specialty Retail industry.

Check out our latest analysis for Chengdu Fusen Noble-House IndustrialLtd

Above you can see how the current ROCE for Chengdu Fusen Noble-House IndustrialLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Chengdu Fusen Noble-House IndustrialLtd .

So How Is Chengdu Fusen Noble-House IndustrialLtd's ROCE Trending?

In terms of Chengdu Fusen Noble-House IndustrialLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 14% from 18% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Chengdu Fusen Noble-House IndustrialLtd's ROCE

To conclude, we've found that Chengdu Fusen Noble-House IndustrialLtd is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 45% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 1 warning sign with Chengdu Fusen Noble-House IndustrialLtd and understanding it should be part of your investment process.

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.