There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Range Intelligent Computing Technology Group's (SZSE:300442) returns on capital, so let's have a look.

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. The formula for this calculation on Range Intelligent Computing Technology Group is:

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

0.091 = CN¥2.0b ÷ (CN¥26b - CN¥4.3b) (Based on the trailing twelve months to March 2024).

Therefore, Range Intelligent Computing Technology Group has an ROCE of 9.1%. On its own that's a low return, but compared to the average of 3.9% generated by the IT industry, it's much better.

Above you can see how the current ROCE for Range Intelligent Computing Technology Group 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 Range Intelligent Computing Technology Group for free.

What Does the ROCE Trend For Range Intelligent Computing Technology Group Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 486% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 16%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Range Intelligent Computing Technology Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Range Intelligent Computing Technology Group's ROCE

All in all, it's terrific to see that Range Intelligent Computing Technology Group is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 21% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 4 warning signs we've spotted with Range Intelligent Computing Technology Group (including 2 which are a bit concerning) .

While Range Intelligent Computing Technology Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.