If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Wingtech TechnologyLtd (SHSE:600745) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Wingtech TechnologyLtd, this is the formula:

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

0.06 = CN¥3.0b ÷ (CN¥78b - CN¥27b) (Based on the trailing twelve months to September 2023).

Therefore, Wingtech TechnologyLtd has an ROCE of 6.0%. In absolute terms, that's a low return but it's around the Electronic industry average of 5.1%.

View our latest analysis for Wingtech TechnologyLtd

Above you can see how the current ROCE for Wingtech TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Wingtech TechnologyLtd here for free.

What Does the ROCE Trend For Wingtech TechnologyLtd Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 6.0%. The amount of capital employed has increased too, by 1,298%. So we're very much inspired by what we're seeing at Wingtech TechnologyLtd thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Wingtech TechnologyLtd's ROCE

All in all, it's terrific to see that Wingtech TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 52% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Wingtech TechnologyLtd does come with some risks, and we've found 1 warning sign 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.

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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.