What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 ran our eye over 37 Interactive Entertainment Network Technology Group's (SZSE:002555) 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 37 Interactive Entertainment Network Technology Group, this is the formula:

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

0.24 = CN¥3.1b ÷ (CN¥19b - CN¥5.9b) (Based on the trailing twelve months to September 2023).

Therefore, 37 Interactive Entertainment Network Technology Group has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 3.8% earned by companies in a similar industry.

Check out our latest analysis for 37 Interactive Entertainment Network Technology Group

In the above chart we have measured 37 Interactive Entertainment Network Technology Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering 37 Interactive Entertainment Network Technology Group here for free.

What Can We Tell From 37 Interactive Entertainment Network Technology Group's ROCE Trend?

We'd be pretty happy with returns on capital like 37 Interactive Entertainment Network Technology Group. The company has consistently earned 24% for the last five years, and the capital employed within the business has risen 92% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

Our Take On 37 Interactive Entertainment Network Technology Group's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 146% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

37 Interactive Entertainment Network Technology Group does have some risks though, and we've spotted 1 warning sign for 37 Interactive Entertainment Network Technology Group that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.