Returns At Niu Technologies (NASDAQ:NIU) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Speaking of which, we noticed some great changes in Niu Technologies' (NASDAQ:NIU) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Niu Technologies:

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

0.003 = CN¥4.1m ÷ (CN¥2.9b - CN¥1.5b) (Based on the trailing twelve months to September 2022).

Therefore, Niu Technologies has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Auto industry average of 15%.

Check out our latest analysis for Niu Technologies

Above you can see how the current ROCE for Niu Technologies 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 Niu Technologies here for free.

What Does the ROCE Trend For Niu Technologies Tell Us?

The fact that Niu Technologies is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 0.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Niu Technologies is utilizing 526% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 52%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

Long story short, we're delighted to see that Niu Technologies' reinvestment activities have paid off and the company is now profitable. Given the stock has declined 47% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 2 warning signs facing Niu Technologies that you might find interesting.

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.