Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Macmic Science&TechnologyLtd (SHSE:688711), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Macmic Science&TechnologyLtd:

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

0.033 = CN¥54m ÷ (CN¥2.5b - CN¥866m) (Based on the trailing twelve months to June 2024).

Therefore, Macmic Science&TechnologyLtd has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 4.3%.

Above you can see how the current ROCE for Macmic Science&TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Macmic Science&TechnologyLtd .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Macmic Science&TechnologyLtd doesn't inspire confidence. Around five years ago the returns on capital were 8.7%, but since then they've fallen to 3.3%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 Key Takeaway

In summary, Macmic Science&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 70% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Macmic Science&TechnologyLtd has the makings of a multi-bagger.

On a final note, we found 4 warning signs for Macmic Science&TechnologyLtd (1 is concerning) you should be aware of.

While Macmic Science&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.