To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Zheneng Jinjiang Environment Holding (SGX:BWM), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Zheneng Jinjiang Environment Holding:

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

0.062 = CN¥971m ÷ (CN¥22b - CN¥5.7b) (Based on the trailing twelve months to June 2023).

So, Zheneng Jinjiang Environment Holding has an ROCE of 6.2%. On its own, that's a low figure but it's around the 6.9% average generated by the Renewable Energy industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Zheneng Jinjiang Environment Holding's past further, check out this free graph covering Zheneng Jinjiang Environment Holding's past earnings, revenue and cash flow.

What Can We Tell From Zheneng Jinjiang Environment Holding's ROCE Trend?

In terms of Zheneng Jinjiang Environment Holding's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 8.2%, but since then they've fallen to 6.2%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

In Conclusion...

To conclude, we've found that Zheneng Jinjiang Environment Holding is reinvesting in the business, but returns have been falling. Since the stock has declined 59% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 4 warning signs for Zheneng Jinjiang Environment Holding (3 are potentially serious) you should be aware of.

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.