To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Zhejiang Daily Digital Culture GroupLtd (SHSE:600633) and its trend of ROCE, we really liked what we saw.

What Is 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 Zhejiang Daily Digital Culture GroupLtd is:

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

0.066 = CN¥752m ÷ (CN¥13b - CN¥1.5b) (Based on the trailing twelve months to June 2023).

Therefore, Zhejiang Daily Digital Culture GroupLtd has an ROCE of 6.6%. On its own that's a low return, but compared to the average of 4.3% generated by the Entertainment industry, it's much better.

View our latest analysis for Zhejiang Daily Digital Culture GroupLtd

Above you can see how the current ROCE for Zhejiang Daily Digital Culture GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Zhejiang Daily Digital Culture GroupLtd.

What Does the ROCE Trend For Zhejiang Daily Digital Culture GroupLtd Tell Us?

Zhejiang Daily Digital Culture GroupLtd has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 96% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

In summary, we're delighted to see that Zhejiang Daily Digital Culture GroupLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 2 warning signs for Zhejiang Daily Digital Culture GroupLtd (1 is a bit concerning) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.