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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating ZheJiang Haers Vacuum ContainersLtd (SZSE:002615), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on ZheJiang Haers Vacuum ContainersLtd is:

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

0.12 = CN¥232m ÷ (CN¥2.8b - CN¥909m) (Based on the trailing twelve months to March 2024).

Thus, ZheJiang Haers Vacuum ContainersLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.4% generated by the Consumer Durables industry.

In the above chart we have measured ZheJiang Haers Vacuum ContainersLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ZheJiang Haers Vacuum ContainersLtd .

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 17% five years ago, while capital employed has grown 95%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence ZheJiang Haers Vacuum ContainersLtd might not have received a full period of earnings contribution from it.

On a related note, ZheJiang Haers Vacuum ContainersLtd has decreased its current liabilities to 33% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From ZheJiang Haers Vacuum ContainersLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that ZheJiang Haers Vacuum ContainersLtd is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 45% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

ZheJiang Haers Vacuum ContainersLtd does have some risks though, and we've spotted 1 warning sign for ZheJiang Haers Vacuum ContainersLtd that you might be interested in.

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

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