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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Shanghai Hanbell Precise Machinery's (SZSE:002158) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
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 Shanghai Hanbell Precise Machinery is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = CN¥979m ÷ (CN¥6.6b - CN¥2.5b) (Based on the trailing twelve months to March 2024).
So, Shanghai Hanbell Precise Machinery has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Machinery industry average of 5.6%.
Above you can see how the current ROCE for Shanghai Hanbell Precise Machinery compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai Hanbell Precise Machinery .
What Does the ROCE Trend For Shanghai Hanbell Precise Machinery Tell Us?
Investors would be pleased with what's happening at Shanghai Hanbell Precise Machinery. The data shows that returns on capital have increased substantially over the last five years to 24%. 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 89%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Shanghai Hanbell Precise Machinery's ROCE
All in all, it's terrific to see that Shanghai Hanbell Precise Machinery is reaping the rewards from prior investments and is growing its capital base. And with a respectable 97% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Shanghai Hanbell Precise Machinery can keep these trends up, it could have a bright future ahead.
Like most companies, Shanghai Hanbell Precise Machinery 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com