If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Shenzhen Das Intellitech (SZSE:002421), it didn't seem to tick all of these boxes.

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. To calculate this metric for Shenzhen Das Intellitech, this is the formula:

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

0.0082 = CN¥50m ÷ (CN¥9.4b - CN¥3.3b) (Based on the trailing twelve months to September 2023).

Thus, Shenzhen Das Intellitech has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the IT industry average of 3.8%.

See our latest analysis for Shenzhen Das Intellitech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Das Intellitech's ROCE against it's prior returns. If you'd like to look at how Shenzhen Das Intellitech has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Shenzhen Das Intellitech Tell Us?

On the surface, the trend of ROCE at Shenzhen Das Intellitech doesn't inspire confidence. To be more specific, ROCE has fallen from 9.5% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Shenzhen Das Intellitech's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Shenzhen Das Intellitech is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 17% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Shenzhen Das Intellitech (of which 2 shouldn't be ignored!) that you should know about.

While Shenzhen Das Intellitech 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.