If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Wuxi HyatechLtd (SHSE:688510) so let's look a bit deeper.

Understanding 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 Wuxi HyatechLtd is:

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

0.088 = CN¥96m ÷ (CN¥1.5b - CN¥376m) (Based on the trailing twelve months to December 2023).

So, Wuxi HyatechLtd has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Aerospace & Defense industry average of 5.4%.

In the above chart we have measured Wuxi HyatechLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Wuxi HyatechLtd for free.

What Does the ROCE Trend For Wuxi HyatechLtd Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 187%. So we're very much inspired by what we're seeing at Wuxi HyatechLtd thanks to its ability to profitably reinvest capital.

Our Take On Wuxi HyatechLtd's ROCE

To sum it up, Wuxi HyatechLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 28% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 688510 on our platform that is definitely worth checking out.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.