Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Anhui Yingjia Distillery (SHSE:603198) we really liked what we saw.

What Is 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. To calculate this metric for Anhui Yingjia Distillery, this is the formula:

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

0.34 = CN¥2.7b ÷ (CN¥10b - CN¥2.5b) (Based on the trailing twelve months to September 2023).

Therefore, Anhui Yingjia Distillery has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Beverage industry average of 12%.

See our latest analysis for Anhui Yingjia Distillery

Above you can see how the current ROCE for Anhui Yingjia Distillery compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Anhui Yingjia Distillery here for free.

What Can We Tell From Anhui Yingjia Distillery's ROCE Trend?

The trends we've noticed at Anhui Yingjia Distillery are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 34%. 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 92%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Anhui Yingjia Distillery is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 421% 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 Anhui Yingjia Distillery 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.

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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.