Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating GRINM Semiconductor Materials (SHSE:688432), we don't think it's current trends fit the mold of a multi-bagger.

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

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 GRINM Semiconductor Materials, this is the formula:

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

0.029 = CN¥143m ÷ (CN¥5.2b - CN¥307m) (Based on the trailing twelve months to September 2024).

Therefore, GRINM Semiconductor Materials has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 4.9%.

In the above chart we have measured GRINM Semiconductor Materials' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for GRINM Semiconductor Materials .

What Can We Tell From GRINM Semiconductor Materials' ROCE Trend?

When we looked at the ROCE trend at GRINM Semiconductor Materials, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.9% over the last five years. 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.

What We Can Learn From GRINM Semiconductor Materials' ROCE

To conclude, we've found that GRINM Semiconductor Materials is reinvesting in the business, but returns have been falling. Since the stock has declined 12% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 3 warning signs facing GRINM Semiconductor Materials that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.