There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Having said that, from a first glance at Tianjin Ruixin TechnologyLtd (SZSE:300828) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Tianjin Ruixin TechnologyLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = CN¥57m ÷ (CN¥862m - CN¥75m) (Based on the trailing twelve months to September 2024).
So, Tianjin Ruixin TechnologyLtd has an ROCE of 7.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.8%.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Tianjin Ruixin TechnologyLtd.
The Trend Of ROCE
In terms of Tianjin Ruixin TechnologyLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 16% over the last five years. 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.
Our Take On Tianjin Ruixin TechnologyLtd's ROCE
We're a bit apprehensive about Tianjin Ruixin TechnologyLtd because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 0.4% return to shareholders who held over the last three years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.
On a separate note, we've found 1 warning sign for Tianjin Ruixin TechnologyLtd you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
