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. Although, when we looked at Haitian International Holdings (HKG:1882), it didn't seem to tick all of these boxes.

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 Haitian International Holdings, this is the formula:

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

0.12 = CN¥2.6b ÷ (CN¥29b - CN¥7.5b) (Based on the trailing twelve months to December 2023).

Thus, Haitian International Holdings has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.5% it's much better.

In the above chart we have measured Haitian International Holdings' 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 Haitian International Holdings .

What Can We Tell From Haitian International Holdings' ROCE Trend?

In terms of Haitian International Holdings' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 12% from 17% five years ago. However it looks like Haitian International Holdings 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Haitian International Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Haitian International Holdings' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 71% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Haitian International Holdings does have some risks though, and we've spotted 1 warning sign for Haitian International Holdings that you might be interested in.

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.