We Like These Underlying Return On Capital Trends At BOE Technology Group (SZSE:000725)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at BOE Technology Group (SZSE:000725) so let's look a bit deeper.

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. Analysts use this formula to calculate it for BOE Technology Group:

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

0.012 = CN¥3.7b ÷ (CN¥417b - CN¥102b) (Based on the trailing twelve months to September 2024).

So, BOE Technology Group has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.

View our latest analysis for BOE Technology Group

Above you can see how the current ROCE for BOE Technology Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BOE Technology Group for free.

What Can We Tell From BOE Technology Group's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 1.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 26% more capital is being employed now too. So we're very much inspired by what we're seeing at BOE Technology Group thanks to its ability to profitably reinvest capital.

What We Can Learn From BOE Technology Group's ROCE

To sum it up, BOE Technology Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 4.5% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 2 warning signs facing BOE Technology Group that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.