Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after investigating Shandong Xinjufeng Technology Packaging (SZSE:301296), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Shandong Xinjufeng Technology Packaging, this is the formula:

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

0.072 = CN¥183m ÷ (CN¥3.2b - CN¥687m) (Based on the trailing twelve months to June 2024).

Thus, Shandong Xinjufeng Technology Packaging has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Packaging industry average of 5.3%.

Above you can see how the current ROCE for Shandong Xinjufeng Technology Packaging 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 Shandong Xinjufeng Technology Packaging .

How Are Returns Trending?

On the surface, the trend of ROCE at Shandong Xinjufeng Technology Packaging doesn't inspire confidence. To be more specific, ROCE has fallen from 15% over the last five years. 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.

What We Can Learn From Shandong Xinjufeng Technology Packaging's ROCE

To conclude, we've found that Shandong Xinjufeng Technology Packaging is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 48% in the last year. 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.

While Shandong Xinjufeng Technology Packaging 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 301296 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.