Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, BaWang International (Group) Holding (HKG:1338) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for BaWang International (Group) Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = CN¥9.7m ÷ (CN¥225m - CN¥73m) (Based on the trailing twelve months to June 2024).
So, BaWang International (Group) Holding has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 13%.
View our latest analysis for BaWang International (Group) Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for BaWang International (Group) Holding'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 BaWang International (Group) Holding.
So How Is BaWang International (Group) Holding's ROCE Trending?
Shareholders will be relieved that BaWang International (Group) Holding has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 6.4%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.
In Conclusion...
In summary, we're delighted to see that BaWang International (Group) Holding has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 47% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
On a separate note, we've found 1 warning sign for BaWang International (Group) Holding 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.