Ningxia Western Venture IndustrialLtd's (SZSE:000557) Returns Have Hit A Wall

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Ningxia Western Venture IndustrialLtd (SZSE:000557) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Ningxia Western Venture IndustrialLtd is:

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

0.044 = CN¥270m ÷ (CN¥6.6b - CN¥492m) (Based on the trailing twelve months to September 2024).

Thus, Ningxia Western Venture IndustrialLtd has an ROCE of 4.4%. Even though it's in line with the industry average of 4.2%, it's still a low return by itself.

View our latest analysis for Ningxia Western Venture IndustrialLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ningxia Western Venture IndustrialLtd.

What Can We Tell From Ningxia Western Venture IndustrialLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at Ningxia Western Venture IndustrialLtd. The company has employed 23% more capital in the last five years, and the returns on that capital have remained stable at 4.4%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Ningxia Western Venture IndustrialLtd's ROCE

As we've seen above, Ningxia Western Venture IndustrialLtd's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 75% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

While Ningxia Western Venture IndustrialLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 000557 on our platform.

While Ningxia Western Venture IndustrialLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.