To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in KEDE Numerical Control's (SHSE:688305) 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. Analysts use this formula to calculate it for KEDE Numerical Control:

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

0.066 = CN¥123m ÷ (CN¥2.2b - CN¥368m) (Based on the trailing twelve months to September 2024).

Therefore, KEDE Numerical Control has an ROCE of 6.6%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.4%.

Above you can see how the current ROCE for KEDE Numerical Control 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 KEDE Numerical Control for free.

What Does the ROCE Trend For KEDE Numerical Control 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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 254%. So we're very much inspired by what we're seeing at KEDE Numerical Control thanks to its ability to profitably reinvest capital.

Our Take On KEDE Numerical Control's ROCE

All in all, it's terrific to see that KEDE Numerical Control is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 42% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 2 warning signs for KEDE Numerical Control (1 is potentially serious) you should be aware of.

While KEDE Numerical Control isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.