If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Having said that, from a first glance at Hebei Sinopack Electronic TechnologyLtd (SZSE:003031) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Hebei Sinopack Electronic TechnologyLtd:

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

0.088 = CN¥568m ÷ (CN¥7.7b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

Thus, Hebei Sinopack Electronic TechnologyLtd has an ROCE of 8.8%. On its own that's a low return, but compared to the average of 5.5% generated by the Electronic industry, it's much better.

In the above chart we have measured Hebei Sinopack Electronic TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hebei Sinopack Electronic TechnologyLtd for free.

What Does the ROCE Trend For Hebei Sinopack Electronic TechnologyLtd Tell Us?

We weren't thrilled with the trend because Hebei Sinopack Electronic TechnologyLtd's ROCE has reduced by 24% over the last five years, while the business employed 987% more capital. Usually this isn't ideal, but given Hebei Sinopack Electronic TechnologyLtd conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Hebei Sinopack Electronic TechnologyLtd probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt. Also, we found that by looking at the company's latest EBIT, the figure is within 10% of the previous year's EBIT so you can basically assign the ROCE drop primarily to that capital raise.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Hebei Sinopack Electronic TechnologyLtd's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 22% in the last three years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

While Hebei Sinopack Electronic TechnologyLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 003031 on our platform.

While Hebei Sinopack Electronic TechnologyLtd 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.