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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Comefly Outdoor (SHSE:603908) looks great, so lets see what the trend can tell us.

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 Comefly Outdoor is:

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

0.25 = CN¥151m ÷ (CN¥1.2b - CN¥592m) (Based on the trailing twelve months to September 2023).

Therefore, Comefly Outdoor has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Leisure industry average of 6.2%.

Check out our latest analysis for Comefly Outdoor

Above you can see how the current ROCE for Comefly Outdoor 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 Comefly Outdoor here for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Comefly Outdoor. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 31%. So we're very much inspired by what we're seeing at Comefly Outdoor thanks to its ability to profitably reinvest capital.

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. Effectively this means that suppliers or short-term creditors are now funding 50% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line

All in all, it's terrific to see that Comefly Outdoor is reaping the rewards from prior investments and is growing its capital base. And with a respectable 67% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

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.