July 23, 2024

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The Returns On Capital At WINBO-Dongjian Automotive Technology (SZSE:300978) Don’t Inspire Confidence

4 min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating WINBO-Dongjian Automotive Technology (SZSE:300978), we don’t think it’s current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for WINBO-Dongjian Automotive Technology, this is the formula:

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

0.088 = CN¥164m ÷ (CN¥3.0b – CN¥1.2b) (Based on the trailing twelve months to March 2024).

Thus, WINBO-Dongjian Automotive Technology has an ROCE of 8.8%. On its own that’s a low return, but compared to the average of 6.9% generated by the Auto Components industry, it’s much better.

See our latest analysis for WINBO-Dongjian Automotive Technology

roce
SZSE:300978 Return on Capital Employed June 26th 2024

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 WINBO-Dongjian Automotive Technology.

What Can We Tell From WINBO-Dongjian Automotive Technology’s ROCE Trend?

In terms of WINBO-Dongjian Automotive Technology’s historical ROCE movements, the trend isn’t fantastic. Around five years ago the returns on capital were 17%, but since then they’ve fallen to 8.8%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From WINBO-Dongjian Automotive Technology’s ROCE

In summary, despite lower returns in the short term, we’re encouraged to see that WINBO-Dongjian Automotive Technology is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 48% in the last three years. So we think it’d be worthwhile to look further into this stock given the trends look encouraging.

One final note, you should learn about the 2 warning signs we’ve spotted with WINBO-Dongjian Automotive Technology (including 1 which is concerning) .

While WINBO-Dongjian Automotive Technology isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we’re helping make it simple.

Find out whether WINBO-Dongjian Automotive Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether WINBO-Dongjian Automotive Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

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