If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Atlantic China Welding Consumables (SHSE:600558), it didn't seem to tick all of these boxes.

What Is 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. The formula for this calculation on Atlantic China Welding Consumables is:

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

0.042 = CN¥104m ÷ (CN¥3.2b - CN¥692m) (Based on the trailing twelve months to September 2023).

So, Atlantic China Welding Consumables has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.1%.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Atlantic China Welding Consumables' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Atlantic China Welding Consumables Tell Us?

There hasn't been much to report for Atlantic China Welding Consumables' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Atlantic China Welding Consumables doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Atlantic China Welding Consumables' ROCE

In a nutshell, Atlantic China Welding Consumables has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 11% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 1 warning sign facing Atlantic China Welding Consumables that you might find interesting.

While Atlantic China Welding Consumables 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.