There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Zhejiang Yilida VentilatorLtd (SZSE:002686) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Zhejiang Yilida VentilatorLtd is:

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

0.021 = CN¥39m ÷ (CN¥3.0b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

So, Zhejiang Yilida VentilatorLtd has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Building industry average of 7.3%.

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

What Does the ROCE Trend For Zhejiang Yilida VentilatorLtd Tell Us?

Shareholders will be relieved that Zhejiang Yilida VentilatorLtd has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.1% on its capital. While returns have increased, the amount of capital employed by Zhejiang Yilida VentilatorLtd has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

As discussed above, Zhejiang Yilida VentilatorLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

Zhejiang Yilida VentilatorLtd does have some risks though, and we've spotted 2 warning signs for Zhejiang Yilida VentilatorLtd that you might be interested in.

While Zhejiang Yilida VentilatorLtd 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.