U.S. Markets close in 1 hr 25 mins
  • S&P 500

    3,463.81
    +36.89 (+1.08%)
     
  • Dow 30

    28,457.36
    +261.94 (+0.93%)
     
  • Nasdaq

    11,591.10
    +112.22 (+0.98%)
     
  • Russell 2000

    1,629.17
    +15.54 (+0.96%)
     
  • Crude Oil

    41.56
    +0.73 (+1.79%)
     
  • Gold

    1,915.00
    +3.30 (+0.17%)
     
  • Silver

    24.98
    +0.28 (+1.14%)
     
  • EUR/USD

    1.1833
    +0.0060 (+0.5088%)
     
  • 10-Yr Bond

    0.7940
    +0.0330 (+4.34%)
     
  • Vix

    28.44
    -0.74 (-2.54%)
     
  • GBP/USD

    1.2940
    -0.0000 (-0.0013%)
     
  • USD/JPY

    105.4540
    +0.0240 (+0.0228%)
     
  • BTC-USD

    11,933.05
    +876.04 (+7.92%)
     
  • CMC Crypto 200

    239.70
    +0.78 (+0.33%)
     
  • FTSE 100

    5,889.22
    +4.57 (+0.08%)
     
  • Nikkei 225

    23,567.04
    -104.09 (-0.44%)
     

Is There More Growth In Store For Niu Technologies' (NASDAQ:NIU) Returns On Capital?

Simply Wall St
·3 mins read

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 on that note, Niu Technologies (NASDAQ:NIU) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Niu Technologies is:

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

0.18 = CN¥158m ÷ (CN¥1.7b - CN¥812m) (Based on the trailing twelve months to June 2020).

Thus, Niu Technologies has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Auto industry.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The fact that Niu Technologies is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses two years ago, but now it's earning 18% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Niu Technologies is utilizing 340% more capital than it was two years ago. 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 48%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line On Niu Technologies' ROCE

Overall, Niu Technologies gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 223% total return over the last year tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for Niu Technologies you'll probably want to know about.

While Niu Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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.

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