Returns On Capital Signal Tricky Times Ahead For Beijing ConST Instruments Technology (SZSE:300445)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Beijing ConST Instruments Technology (SZSE:300445) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. Analysts use this formula to calculate it for Beijing ConST Instruments Technology:

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

0.11 = CN¥130m ÷ (CN¥1.2b - CN¥59m) (Based on the trailing twelve months to June 2024).

So, Beijing ConST Instruments Technology has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Electronic industry.

View our latest analysis for Beijing ConST Instruments Technology

Above you can see how the current ROCE for Beijing ConST Instruments Technology 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 ConST Instruments Technology .

So How Is Beijing ConST Instruments Technology's ROCE Trending?

When we looked at the ROCE trend at Beijing ConST Instruments Technology, we didn't gain much confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 11%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Beijing ConST Instruments Technology's ROCE

While returns have fallen for Beijing ConST Instruments Technology in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 48% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you're still interested in Beijing ConST Instruments Technology it's worth checking out our FREE intrinsic value approximation for 300445 to see if it's trading at an attractive price in other respects.

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.