If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Proya CosmeticsLtd's (SHSE:603605) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Proya CosmeticsLtd:

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

0.29 = CN¥1.4b ÷ (CN¥6.9b - CN¥2.1b) (Based on the trailing twelve months to September 2023).

So, Proya CosmeticsLtd has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 9.3%.

See our latest analysis for Proya CosmeticsLtd

In the above chart we have measured Proya CosmeticsLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Proya CosmeticsLtd here for free.

What Can We Tell From Proya CosmeticsLtd's ROCE Trend?

Investors would be pleased with what's happening at Proya CosmeticsLtd. Over the last five years, returns on capital employed have risen substantially to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 171% more capital is being employed now too. So we're very much inspired by what we're seeing at Proya CosmeticsLtd thanks to its ability to profitably reinvest capital.

Our Take On Proya CosmeticsLtd's ROCE

All in all, it's terrific to see that Proya CosmeticsLtd is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Proya CosmeticsLtd can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Proya CosmeticsLtd that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.