If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Shenzhen Mindray Bio-Medical Electronics' (SZSE:300760) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Shenzhen Mindray Bio-Medical Electronics, this is the formula:

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

0.32 = CN¥13b ÷ (CN¥51b - CN¥11b) (Based on the trailing twelve months to March 2024).

Thus, Shenzhen Mindray Bio-Medical Electronics has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 6.4%.

Above you can see how the current ROCE for Shenzhen Mindray Bio-Medical Electronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Shenzhen Mindray Bio-Medical Electronics .

What Does the ROCE Trend For Shenzhen Mindray Bio-Medical Electronics Tell Us?

Shenzhen Mindray Bio-Medical Electronics is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 32%. The amount of capital employed has increased too, by 123%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

In summary, it's great to see that Shenzhen Mindray Bio-Medical Electronics can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 79% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Shenzhen Mindray Bio-Medical Electronics, you might be interested to know about the 1 warning sign that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.

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