There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Goodwill E-Health Info's (SHSE:688246) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Goodwill E-Health Info, this is the formula:

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

0.011 = CN¥21m ÷ (CN¥2.7b - CN¥835m) (Based on the trailing twelve months to March 2024).

Thus, Goodwill E-Health Info has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Healthcare Services industry average of 3.1%.

In the above chart we have measured Goodwill E-Health Info's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Goodwill E-Health Info .

So How Is Goodwill E-Health Info's ROCE Trending?

The fact that Goodwill E-Health Info is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 1.1% which is a sight for sore eyes. In addition to that, Goodwill E-Health Info is employing 586% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 31%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Goodwill E-Health Info has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Goodwill E-Health Info's ROCE

Long story short, we're delighted to see that Goodwill E-Health Info's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 33% 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.

If you'd like to know about the risks facing Goodwill E-Health Info, we've discovered 1 warning sign that you should be aware of.

While Goodwill E-Health Info isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.