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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Uni-Trend Technology (China) (SHSE:688628) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. The formula for this calculation on Uni-Trend Technology (China) is:

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

0.13 = CN¥155m ÷ (CN¥1.4b - CN¥231m) (Based on the trailing twelve months to September 2023).

Therefore, Uni-Trend Technology (China) has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.1% generated by the Electronic industry.

Above you can see how the current ROCE for Uni-Trend Technology (China) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Uni-Trend Technology (China).

What Does the ROCE Trend For Uni-Trend Technology (China) Tell Us?

In terms of Uni-Trend Technology (China)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 25% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Uni-Trend Technology (China) has done well to pay down its current liabilities to 16% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Uni-Trend Technology (China)'s ROCE

While returns have fallen for Uni-Trend Technology (China) in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 6.5% over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Uni-Trend Technology (China) does have some risks though, and we've spotted 1 warning sign for Uni-Trend Technology (China) that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.