If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at G-bits Network Technology (Xiamen)'s (SHSE:603444) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on G-bits Network Technology (Xiamen) is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.38 = CN¥1.9b ÷ (CN¥6.5b - CN¥1.5b) (Based on the trailing twelve months to September 2023).
So, G-bits Network Technology (Xiamen) has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 3.8% earned by companies in a similar industry.
View our latest analysis for G-bits Network Technology (Xiamen)
Above you can see how the current ROCE for G-bits Network Technology (Xiamen) compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
Investors would be pleased with what's happening at G-bits Network Technology (Xiamen). The data shows that returns on capital have increased substantially over the last five years to 38%. 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 71%. So we're very much inspired by what we're seeing at G-bits Network Technology (Xiamen) thanks to its ability to profitably reinvest capital.
The Bottom Line On G-bits Network Technology (Xiamen)'s ROCE
To sum it up, G-bits Network Technology (Xiamen) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 116% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if G-bits Network Technology (Xiamen) can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing G-bits Network Technology (Xiamen), we've discovered 2 warning signs 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.
