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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at CECEP Solar EnergyLtd (SZSE:000591) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for CECEP Solar EnergyLtd:

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

0.06 = CN¥2.4b ÷ (CN¥48b - CN¥7.5b) (Based on the trailing twelve months to June 2024).

Thus, CECEP Solar EnergyLtd has an ROCE of 6.0%. Even though it's in line with the industry average of 5.5%, it's still a low return by itself.

In the above chart we have measured CECEP Solar EnergyLtd'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 CECEP Solar EnergyLtd .

How Are Returns Trending?

The returns on capital haven't changed much for CECEP Solar EnergyLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 6.0% and the business has deployed 42% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

Long story short, while CECEP Solar EnergyLtd has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 37% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about CECEP Solar EnergyLtd, we've spotted 2 warning signs, and 1 of them is concerning.

While CECEP Solar EnergyLtd 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.