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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at the ROCE trend of Shanxi Xinghuacun Fen Wine FactoryLtd (SHSE:600809) 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. Analysts use this formula to calculate it for Shanxi Xinghuacun Fen Wine FactoryLtd:

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

0.48 = CN¥14b ÷ (CN¥42b - CN¥14b) (Based on the trailing twelve months to September 2023).

Therefore, Shanxi Xinghuacun Fen Wine FactoryLtd has an ROCE of 48%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for Shanxi Xinghuacun Fen Wine FactoryLtd

Above you can see how the current ROCE for Shanxi Xinghuacun Fen Wine FactoryLtd 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 report for Shanxi Xinghuacun Fen Wine FactoryLtd.

What Does the ROCE Trend For Shanxi Xinghuacun Fen Wine FactoryLtd Tell Us?

We like the trends that we're seeing from Shanxi Xinghuacun Fen Wine FactoryLtd. Over the last five years, returns on capital employed have risen substantially to 48%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 357%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Shanxi Xinghuacun Fen Wine FactoryLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 970% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for Shanxi Xinghuacun Fen Wine FactoryLtd you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.