What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Inmyshow Digital Technology(Group)Co.Ltd (SHSE:600556) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Inmyshow Digital Technology(Group)Co.Ltd, this is the formula:

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

0.021 = CN¥81m ÷ (CN¥5.8b - CN¥1.9b) (Based on the trailing twelve months to March 2024).

So, Inmyshow Digital Technology(Group)Co.Ltd has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Media industry average of 4.0%.

Above you can see how the current ROCE for Inmyshow Digital Technology(Group)Co.Ltd 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 analyst report for Inmyshow Digital Technology(Group)Co.Ltd .

What Does the ROCE Trend For Inmyshow Digital Technology(Group)Co.Ltd Tell Us?

On the surface, the trend of ROCE at Inmyshow Digital Technology(Group)Co.Ltd doesn't inspire confidence. Around five years ago the returns on capital were 24%, but since then they've fallen to 2.1%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Inmyshow Digital Technology(Group)Co.Ltd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 63% over the last three years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Inmyshow Digital Technology(Group)Co.Ltd has the makings of a multi-bagger.

While Inmyshow Digital Technology(Group)Co.Ltd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 600556 on our platform.

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.