Beijing SuperMap Software's (SZSE:300036) Returns On Capital Not Reflecting Well On The Business

There are a few key trends to look for if we want to identify the next 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. However, after briefly looking over the numbers, we don't think Beijing SuperMap Software (SZSE:300036) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Beijing SuperMap Software is:

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

0.0035 = CN¥10m ÷ (CN¥4.1b - CN¥1.2b) (Based on the trailing twelve months to September 2024).

Thus, Beijing SuperMap Software has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Software industry average of 2.3%.

View our latest analysis for Beijing SuperMap Software

Above you can see how the current ROCE for Beijing SuperMap Software 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 Beijing SuperMap Software .

What Does the ROCE Trend For Beijing SuperMap Software Tell Us?

We weren't thrilled with the trend because Beijing SuperMap Software's ROCE has reduced by 96% over the last five years, while the business employed 41% more capital. That being said, Beijing SuperMap Software raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Beijing SuperMap Software probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Bottom Line

We're a bit apprehensive about Beijing SuperMap Software because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Beijing SuperMap Software (including 1 which can't be ignored) .

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.