If you're looking for a multi-bagger, there's a few things to 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. With that in mind, the ROCE of Shenzhen Inovance TechnologyLtd (SZSE:300124) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Shenzhen Inovance TechnologyLtd is:

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

0.14 = CN¥4.4b ÷ (CN¥53b - CN¥21b) (Based on the trailing twelve months to September 2024).

Therefore, Shenzhen Inovance TechnologyLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.2% it's much better.

Above you can see how the current ROCE for Shenzhen Inovance TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shenzhen Inovance TechnologyLtd for free.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 293% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Shenzhen Inovance TechnologyLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Shenzhen Inovance TechnologyLtd's ROCE

In the end, Shenzhen Inovance TechnologyLtd has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 233% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 2 warning signs for Shenzhen Inovance TechnologyLtd you'll probably want to know about.

While Shenzhen Inovance TechnologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.