If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Bestway Marine & Energy TechnologyLtd (SZSE:300008) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Bestway Marine & Energy TechnologyLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.06 = CN¥131m ÷ (CN¥4.0b - CN¥1.9b) (Based on the trailing twelve months to September 2023).
Thus, Bestway Marine & Energy TechnologyLtd has an ROCE of 6.0%. On its own, that's a low figure but it's around the 6.8% average generated by the Construction industry.
View our latest analysis for Bestway Marine & Energy TechnologyLtd
Above you can see how the current ROCE for Bestway Marine & Energy TechnologyLtd 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 Bestway Marine & Energy TechnologyLtd here for free.
The Trend Of ROCE
We're delighted to see that Bestway Marine & Energy TechnologyLtd is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 6.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Bestway Marine & Energy TechnologyLtd is utilizing 60% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
On a separate but related note, it's important to know that Bestway Marine & Energy TechnologyLtd has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Key Takeaway
In summary, it's great to see that Bestway Marine & Energy TechnologyLtd has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 34% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
On a final note, we've found 1 warning sign for Bestway Marine & Energy TechnologyLtd that we think you should be aware of.
While Bestway Marine & Energy TechnologyLtd 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.