Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Ningxia Western Venture IndustrialLtd (SZSE:000557), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Ningxia Western Venture IndustrialLtd:

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

0.043 = CN¥251m ÷ (CN¥6.3b - CN¥463m) (Based on the trailing twelve months to September 2023).

Therefore, Ningxia Western Venture IndustrialLtd has an ROCE of 4.3%. Even though it's in line with the industry average of 3.8%, it's still a low return by itself.

View our latest analysis for Ningxia Western Venture IndustrialLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ningxia Western Venture IndustrialLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ningxia Western Venture IndustrialLtd, check out these free graphs here.

What Can We Tell From Ningxia Western Venture IndustrialLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at Ningxia Western Venture IndustrialLtd. The company has consistently earned 4.3% for the last five years, and the capital employed within the business has risen 41% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, Ningxia Western Venture IndustrialLtd's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 33% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

While Ningxia Western Venture IndustrialLtd 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 on our platform.

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.