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Investors Will Want Niu Technologies' (NASDAQ:NIU) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Niu Technologies (NASDAQ:NIU) and its trend of ROCE, we really liked what we saw.

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 Niu Technologies, this is the formula:

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

0.003 = CN¥4.1m ÷ (CN¥2.9b - CN¥1.5b) (Based on the trailing twelve months to September 2022).

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Therefore, Niu Technologies has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Auto industry average of 15%.

View our latest analysis for Niu Technologies

roce
roce

In the above chart we have measured Niu Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Niu Technologies.

The Trend Of ROCE

We're delighted to see that Niu Technologies is reaping rewards from its investments and is now generating some pre-tax profits. About four years ago the company was generating losses but things have turned around because it's now earning 0.3% on its capital. In addition to that, Niu Technologies is employing 526% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 52%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

What We Can Learn From Niu Technologies' ROCE

In summary, it's great to see that Niu Technologies has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 27% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Niu Technologies, we've discovered 2 warning signs that you should be aware of.

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.

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.

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