Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Wuxi Paike New Materials TechnologyLtd (SHSE:605123) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Wuxi Paike New Materials TechnologyLtd is:

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

0.088 = CN¥410m ÷ (CN¥6.8b - CN¥2.2b) (Based on the trailing twelve months to March 2024).

Thus, Wuxi Paike New Materials TechnologyLtd has an ROCE of 8.8%. On its own that's a low return, but compared to the average of 6.7% generated by the Metals and Mining industry, it's much better.

In the above chart we have measured Wuxi Paike New Materials TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wuxi Paike New Materials TechnologyLtd .

What Does the ROCE Trend For Wuxi Paike New Materials TechnologyLtd Tell Us?

On the surface, the trend of ROCE at Wuxi Paike New Materials TechnologyLtd doesn't inspire confidence. To be more specific, ROCE has fallen from 23% over the last five years. However it looks like Wuxi Paike New Materials TechnologyLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Wuxi Paike New Materials TechnologyLtd's ROCE

In summary, Wuxi Paike New Materials TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 17% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Like most companies, Wuxi Paike New Materials TechnologyLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While Wuxi Paike New Materials TechnologyLtd 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.