If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Zhejiang Tuna Environmental Science & TechnologyCo.Ltd (SHSE:603177), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Zhejiang Tuna Environmental Science & TechnologyCo.Ltd:

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

0.019 = CN¥15m ÷ (CN¥1.8b - CN¥1.0b) (Based on the trailing twelve months to September 2023).

So, Zhejiang Tuna Environmental Science & TechnologyCo.Ltd has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 5.5%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zhejiang Tuna Environmental Science & TechnologyCo.Ltd's ROCE against it's prior returns. If you'd like to look at how Zhejiang Tuna Environmental Science & TechnologyCo.Ltd has performed in the past in other metrics, you can view this free graph of Zhejiang Tuna Environmental Science & TechnologyCo.Ltd's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Zhejiang Tuna Environmental Science & TechnologyCo.Ltd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 5.2%, but since then they've fallen to 1.9%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Zhejiang Tuna Environmental Science & TechnologyCo.Ltd's current liabilities are still rather high at 57% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Zhejiang Tuna Environmental Science & TechnologyCo.Ltd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Zhejiang Tuna Environmental Science & TechnologyCo.Ltd. However, despite the promising trends, the stock has fallen 39% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we've found 1 warning sign for Zhejiang Tuna Environmental Science & TechnologyCo.Ltd that we think you should be aware of.

While Zhejiang Tuna Environmental Science & TechnologyCo.Ltd 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.