If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Asian Star Anchor Chain Jiangsu's (SHSE:601890) returns on capital, so let's have a look.

Understanding 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 Asian Star Anchor Chain Jiangsu, this is the formula:

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

0.049 = CN¥203m ÷ (CN¥5.0b - CN¥860m) (Based on the trailing twelve months to September 2023).

So, Asian Star Anchor Chain Jiangsu has an ROCE of 4.9%. In absolute terms, that's a low return but it's around the Machinery industry average of 6.0%.

In the above chart we have measured Asian Star Anchor Chain Jiangsu's 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 analyst report for Asian Star Anchor Chain Jiangsu .

What Does the ROCE Trend For Asian Star Anchor Chain Jiangsu Tell Us?

Asian Star Anchor Chain Jiangsu has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Asian Star Anchor Chain Jiangsu is utilizing 33% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Asian Star Anchor Chain Jiangsu's ROCE

Overall, Asian Star Anchor Chain Jiangsu gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Considering the stock has delivered 16% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a separate note, we've found 2 warning signs for Asian Star Anchor Chain Jiangsu you'll probably want to know about.

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.