There are a few key trends to look for if we want to identify the next 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. Speaking of which, we noticed some great changes in Chengdu CORPRO TechnologyLtd's (SZSE:300101) returns on capital, so let's have a look.

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 Chengdu CORPRO TechnologyLtd is:

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

0.058 = CN¥117m ÷ (CN¥2.7b - CN¥709m) (Based on the trailing twelve months to September 2023).

Thus, Chengdu CORPRO TechnologyLtd has an ROCE of 5.8%. In absolute terms, that's a low return but it's around the Communications industry average of 5.1%.

View our latest analysis for Chengdu CORPRO TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chengdu CORPRO TechnologyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Chengdu CORPRO TechnologyLtd, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 5.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 54% more capital is being employed now too. So we're very much inspired by what we're seeing at Chengdu CORPRO TechnologyLtd thanks to its ability to profitably reinvest capital.

Our Take On Chengdu CORPRO TechnologyLtd's ROCE

In summary, it's great to see that Chengdu CORPRO TechnologyLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Chengdu CORPRO TechnologyLtd does have some risks though, and we've spotted 2 warning signs for Chengdu CORPRO TechnologyLtd that you might be interested in.

While Chengdu CORPRO TechnologyLtd 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.