If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Ningbo Deye Technology Group's (SHSE:605117) trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Ningbo Deye Technology Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.44 = CN¥2.5b ÷ (CN¥10b - CN¥4.7b) (Based on the trailing twelve months to September 2023).
Thus, Ningbo Deye Technology Group has an ROCE of 44%. That's a fantastic return and not only that, it outpaces the average of 6.1% earned by companies in a similar industry.
Check out our latest analysis for Ningbo Deye Technology Group
In the above chart we have measured Ningbo Deye Technology Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ningbo Deye Technology Group here for free.
So How Is Ningbo Deye Technology Group's ROCE Trending?
Ningbo Deye Technology Group deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 44% and the business has deployed 1,677% more capital into its operations. Now considering ROCE is an attractive 44%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Ningbo Deye Technology Group can keep this up, we'd be very optimistic about its future.
On a side note, Ningbo Deye Technology Group has done well to reduce current liabilities to 45% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.
The Key Takeaway
Ningbo Deye Technology Group has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, despite the favorable fundamentals, the stock has fallen 66% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
Like most companies, Ningbo Deye Technology Group does come with some risks, and we've found 1 warning sign that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.