If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at Global Infotech (SZSE:300465) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on Global Infotech is:

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

0.058 = CN¥39m ÷ (CN¥1.4b - CN¥715m) (Based on the trailing twelve months to June 2023).

Thus, Global Infotech has an ROCE of 5.8%. On its own that's a low return, but compared to the average of 3.3% generated by the Software industry, it's much better.

See our latest analysis for Global Infotech

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 want to delve into the historical earnings, revenue and cash flow of Global Infotech, check out these free graphs here.

The Trend Of ROCE

We're pretty happy with how the ROCE has been trending at Global Infotech. The data shows that returns on capital have increased by 42% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Global Infotech appears to been achieving more with less, since the business is using 62% less capital to run its operation. Global Infotech may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 52% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Key Takeaway

In summary, it's great to see that Global Infotech has been able to turn things around and earn higher returns on lower amounts of capital. And with a respectable 50% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing Global Infotech that you might find interesting.

While Global Infotech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.