Returns Are Gaining Momentum At Beijing Jingyi Automation Equipment (SHSE:688652)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 on that note, Beijing Jingyi Automation Equipment (SHSE:688652) looks quite promising in regards to its trends of return on capital.

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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 Jingyi Automation Equipment is:

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

0.079 = CN¥169m ÷ (CN¥3.8b - CN¥1.6b) (Based on the trailing twelve months to December 2024).

Therefore, Beijing Jingyi Automation Equipment has an ROCE of 7.9%. On its own that's a low return, but compared to the average of 5.9% generated by the Semiconductor industry, it's much better.

Check out our latest analysis for Beijing Jingyi Automation Equipment

In the above chart we have measured Beijing Jingyi Automation Equipment's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Beijing Jingyi Automation Equipment .

What Can We Tell From Beijing Jingyi Automation Equipment's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last four years, returns on capital employed have risen substantially to 7.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 781% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Beijing Jingyi Automation Equipment's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Beijing Jingyi Automation Equipment's ROCE

To sum it up, Beijing Jingyi Automation Equipment has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 40% return over the last year. In light of that, we think it's worth looking further into this stock because if Beijing Jingyi Automation Equipment can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 688652 on our platform that is definitely worth checking out.

While Beijing Jingyi Automation Equipment 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.