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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Hebei Sinopack Electronic TechnologyLtd (SZSE:003031), it didn't seem to tick all of these boxes.

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

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. To calculate this metric for Hebei Sinopack Electronic TechnologyLtd, this is the formula:

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

0.079 = CN¥111m ÷ (CN¥2.0b - CN¥581m) (Based on the trailing twelve months to June 2023).

Thus, Hebei Sinopack Electronic TechnologyLtd has an ROCE of 7.9%. On its own that's a low return, but compared to the average of 5.1% generated by the Electronic industry, it's much better.

Check out our latest analysis for Hebei Sinopack Electronic TechnologyLtd

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 to see what analysts are forecasting going forward, you should check out our free report for Hebei Sinopack Electronic TechnologyLtd.

So How Is Hebei Sinopack Electronic TechnologyLtd's ROCE Trending?

Unfortunately, the trend isn't great with ROCE falling from 13% five years ago, while capital employed has grown 292%. 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. Additionally, we found that Hebei Sinopack Electronic TechnologyLtd's most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.

In Conclusion...

While returns have fallen for Hebei Sinopack Electronic TechnologyLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 10% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Hebei Sinopack Electronic TechnologyLtd does have some risks though, and we've spotted 3 warning signs for Hebei Sinopack Electronic TechnologyLtd that you might be interested in.

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.