If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Jiangsu Beiren Robot System (SHSE:688218), it didn't seem to tick all of these boxes.

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 Jiangsu Beiren Robot System is:

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

0.043 = CN¥48m ÷ (CN¥1.9b - CN¥764m) (Based on the trailing twelve months to September 2024).

So, Jiangsu Beiren Robot System has an ROCE of 4.3%. On its own, that's a low figure but it's around the 5.2% average generated by the Machinery industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangsu Beiren Robot System's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangsu Beiren Robot System.

What Can We Tell From Jiangsu Beiren Robot System's ROCE Trend?

When we looked at the ROCE trend at Jiangsu Beiren Robot System, we didn't gain much confidence. Around five years ago the returns on capital were 7.9%, but since then they've fallen to 4.3%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Another thing to note, Jiangsu Beiren Robot System has a high ratio of current liabilities to total assets of 41%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Jiangsu Beiren Robot System's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Jiangsu Beiren Robot System have fallen, meanwhile the business is employing more capital than it was five years ago. But investors must be expecting an improvement of sorts because over the last three yearsthe stock has delivered a respectable 56% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Jiangsu Beiren Robot System does have some risks though, and we've spotted 2 warning signs for Jiangsu Beiren Robot System 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.