Shanghai Baosight SoftwareLtd (SHSE:600845) Is Achieving High Returns On Its Capital

If you're looking for a multi-bagger, there's a few things to 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Shanghai Baosight SoftwareLtd (SHSE:600845) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Shanghai Baosight SoftwareLtd, this is the formula:

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

0.21 = CN¥2.8b ÷ (CN¥21b - CN¥8.6b) (Based on the trailing twelve months to September 2024).

So, Shanghai Baosight SoftwareLtd has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 2.3% earned by companies in a similar industry.

Check out our latest analysis for Shanghai Baosight SoftwareLtd

Above you can see how the current ROCE for Shanghai Baosight SoftwareLtd 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 Shanghai Baosight SoftwareLtd .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Shanghai Baosight SoftwareLtd. The data shows that returns on capital have increased substantially over the last five years to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 82%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Shanghai Baosight SoftwareLtd's ROCE

In summary, it's great to see that Shanghai Baosight SoftwareLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Shanghai Baosight SoftwareLtd, we've discovered 1 warning sign that you should be aware of.

Shanghai Baosight SoftwareLtd 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.