Returns On Capital Are Showing Encouraging Signs At Ningbo BirdLtd (SHSE:600130)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, Ningbo BirdLtd (SHSE:600130) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ningbo BirdLtd is:

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

0.005 = CN¥5.3m ÷ (CN¥1.2b - CN¥128m) (Based on the trailing twelve months to September 2023).

Therefore, Ningbo BirdLtd has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 6.0%.

Check out our latest analysis for Ningbo BirdLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ningbo BirdLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ningbo BirdLtd.

What Does the ROCE Trend For Ningbo BirdLtd Tell Us?

Ningbo BirdLtd has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.5% which is a sight for sore eyes. In addition to that, Ningbo BirdLtd is employing 21% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Ningbo BirdLtd's ROCE

In summary, it's great to see that Ningbo BirdLtd has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Ningbo BirdLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

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.