Beijing Bayi Space LCD TechnologyLtd (SHSE:688181) May Have Issues Allocating Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Bayi Space LCD TechnologyLtd (SHSE:688181) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Bayi Space LCD TechnologyLtd is:

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

0.047 = CN¥106m ÷ (CN¥2.8b - CN¥560m) (Based on the trailing twelve months to June 2024).

So, Beijing Bayi Space LCD TechnologyLtd has an ROCE of 4.7%. Even though it's in line with the industry average of 5.5%, it's still a low return by itself.

View our latest analysis for Beijing Bayi Space LCD TechnologyLtd

Above you can see how the current ROCE for Beijing Bayi Space LCD TechnologyLtd 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 Bayi Space LCD TechnologyLtd .

The Trend Of ROCE

In terms of Beijing Bayi Space LCD TechnologyLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 22%, but since then they've fallen to 4.7%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Beijing Bayi Space LCD TechnologyLtd's ROCE

To conclude, we've found that Beijing Bayi Space LCD TechnologyLtd is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Beijing Bayi Space LCD TechnologyLtd has the makings of a multi-bagger.

On a final note, we've found 1 warning sign for Beijing Bayi Space LCD TechnologyLtd that we think you should be aware of.

While Beijing Bayi Space LCD TechnologyLtd 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.