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Returns On Capital Are Showing Encouraging Signs At Ningbo TechmationLtd (SHSE:603015)
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Ningbo TechmationLtd (SHSE:603015) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
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 TechmationLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.046 = CN¥77m ÷ (CN¥2.1b - CN¥443m) (Based on the trailing twelve months to September 2024).
So, Ningbo TechmationLtd has an ROCE of 4.6%. On its own, that's a low figure but it's around the 5.6% average generated by the Electronic industry.
Check out our latest analysis for Ningbo TechmationLtd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Ningbo TechmationLtd's ROCE against it's prior returns. If you'd like to look at how Ningbo TechmationLtd has performed in the past in other metrics, you can view this free graph of Ningbo TechmationLtd's past earnings, revenue and cash flow.
So How Is Ningbo TechmationLtd's ROCE Trending?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 4.6%. The amount of capital employed has increased too, by 27%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
To sum it up, Ningbo TechmationLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
One final note, you should learn about the 3 warning signs we've spotted with Ningbo TechmationLtd (including 1 which is significant) .
While Ningbo TechmationLtd 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.
About SHSE:603015
Ningbo TechmationLtd
Offers industrial automation solutions to the plastic machinery industry in China and internationally.
Proven track record with adequate balance sheet.