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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Gansu Yasheng Industrial (Group) (SHSE:600108), it didn't seem to tick all of these boxes.

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 Gansu Yasheng Industrial (Group), this is the formula:

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

0.025 = CN¥183m ÷ (CN¥9.2b - CN¥2.0b) (Based on the trailing twelve months to June 2024).

So, Gansu Yasheng Industrial (Group) has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.2%.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Gansu Yasheng Industrial (Group).

How Are Returns Trending?

There hasn't been much to report for Gansu Yasheng Industrial (Group)'s returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Gansu Yasheng Industrial (Group) to be a multi-bagger going forward.

The Bottom Line On Gansu Yasheng Industrial (Group)'s ROCE

We can conclude that in regards to Gansu Yasheng Industrial (Group)'s returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Gansu Yasheng Industrial (Group) has the makings of a multi-bagger.

One final note, you should learn about the 2 warning signs we've spotted with Gansu Yasheng Industrial (Group) (including 1 which can't be ignored) .

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.