If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Speaking of which, we noticed some great changes in Ningbo Tuopu GroupLtd's (SHSE:601689) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Ningbo Tuopu GroupLtd:

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

0.12 = CN¥2.6b ÷ (CN¥35b - CN¥12b) (Based on the trailing twelve months to March 2024).

Thus, Ningbo Tuopu GroupLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 6.9% it's much better.

In the above chart we have measured Ningbo Tuopu GroupLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Ningbo Tuopu GroupLtd .

What Does the ROCE Trend For Ningbo Tuopu GroupLtd Tell Us?

We like the trends that we're seeing from Ningbo Tuopu GroupLtd. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 188%. So we're very much inspired by what we're seeing at Ningbo Tuopu GroupLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Ningbo Tuopu GroupLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 472% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Ningbo Tuopu GroupLtd does have some risks though, and we've spotted 2 warning signs for Ningbo Tuopu GroupLtd that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.