If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Wuxi Autowell TechnologyLtd (SHSE:688516) we really liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Wuxi Autowell TechnologyLtd:

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

0.27 = CN¥1.3b ÷ (CN¥14b - CN¥9.8b) (Based on the trailing twelve months to September 2023).

Therefore, Wuxi Autowell TechnologyLtd has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 4.4% earned by companies in a similar industry.

Above you can see how the current ROCE for Wuxi Autowell TechnologyLtd 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 Wuxi Autowell TechnologyLtd here for free.

What Can We Tell From Wuxi Autowell TechnologyLtd's ROCE Trend?

Wuxi Autowell TechnologyLtd is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. Basically the business is earning more per dollar of capital invested and in addition to that, 1,135% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Wuxi Autowell TechnologyLtd has a current liabilities to total assets ratio of 68%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

All in all, it's terrific to see that Wuxi Autowell TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. And a remarkable 144% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Wuxi Autowell TechnologyLtd can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Wuxi Autowell TechnologyLtd (at least 1 which is significant) , and understanding them would certainly be useful.

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.