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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Zhongfu Shenying Carbon FiberLtd (SHSE:688295) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Zhongfu Shenying Carbon FiberLtd is:

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

0.063 = CN¥420m ÷ (CN¥8.7b - CN¥2.0b) (Based on the trailing twelve months to September 2023).

So, Zhongfu Shenying Carbon FiberLtd has an ROCE of 6.3%. On its own, that's a low figure but it's around the 5.5% average generated by the Chemicals industry.

See our latest analysis for Zhongfu Shenying Carbon FiberLtd

Above you can see how the current ROCE for Zhongfu Shenying Carbon FiberLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Zhongfu Shenying Carbon FiberLtd's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last four years to 6.3%. The amount of capital employed has increased too, by 732%. So we're very much inspired by what we're seeing at Zhongfu Shenying Carbon FiberLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From Zhongfu Shenying Carbon FiberLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Zhongfu Shenying Carbon FiberLtd has. And since the stock has fallen 35% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Zhongfu Shenying Carbon FiberLtd you'll probably want to know about.

While Zhongfu Shenying Carbon FiberLtd 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.