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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Geo-Jade Petroleum (SHSE:600759), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Geo-Jade Petroleum:

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

0.066 = CN¥734m ÷ (CN¥12b - CN¥1.2b) (Based on the trailing twelve months to June 2024).

So, Geo-Jade Petroleum has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Geo-Jade Petroleum's ROCE against it's prior returns. If you're interested in investigating Geo-Jade Petroleum's past further, check out this free graph covering Geo-Jade Petroleum's past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Geo-Jade Petroleum's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Geo-Jade Petroleum doesn't end up being a multi-bagger in a few years time.

On a side note, Geo-Jade Petroleum has done well to reduce current liabilities to 9.7% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Geo-Jade Petroleum's ROCE

In summary, Geo-Jade Petroleum isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 41% 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.

Geo-Jade Petroleum does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.