If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, from a first glance at Hiecise Precision EquipmentLtd (SZSE:300809) 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?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Hiecise Precision EquipmentLtd:

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

0.038 = CN¥64m ÷ (CN¥2.1b - CN¥413m) (Based on the trailing twelve months to September 2024).

Thus, Hiecise Precision EquipmentLtd has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 5.2%.

In the above chart we have measured Hiecise Precision EquipmentLtd's 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 Hiecise Precision EquipmentLtd .

How Are Returns Trending?

When we looked at the ROCE trend at Hiecise Precision EquipmentLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 23% 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.

The Bottom Line On Hiecise Precision EquipmentLtd's ROCE

To conclude, we've found that Hiecise Precision EquipmentLtd is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 61% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Hiecise Precision EquipmentLtd, we've discovered 1 warning sign that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.