There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Ningxia Western Venture IndustrialLtd (SZSE:000557) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 Ningxia Western Venture IndustrialLtd:

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

0.043 = CN¥256m ÷ (CN¥6.3b - CN¥359m) (Based on the trailing twelve months to March 2024).

Therefore, Ningxia Western Venture IndustrialLtd has an ROCE of 4.3%. Even though it's in line with the industry average of 4.3%, it's still a low return by itself.

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

So How Is Ningxia Western Venture IndustrialLtd's ROCE Trending?

Things have been pretty stable at Ningxia Western Venture IndustrialLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Ningxia Western Venture IndustrialLtd to be a multi-bagger going forward.

What We Can Learn From Ningxia Western Venture IndustrialLtd's ROCE

In summary, Ningxia Western Venture IndustrialLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 19% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

While Ningxia Western Venture IndustrialLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 000557 on our platform.

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.

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