If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at TianJin 712 Communication & Broadcasting (SHSE:603712) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for TianJin 712 Communication & Broadcasting:

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

0.15 = CN¥804m ÷ (CN¥9.7b - CN¥4.5b) (Based on the trailing twelve months to September 2023).

Therefore, TianJin 712 Communication & Broadcasting has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 5.1% generated by the Communications industry.

Above you can see how the current ROCE for TianJin 712 Communication & Broadcasting compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for TianJin 712 Communication & Broadcasting .

What Can We Tell From TianJin 712 Communication & Broadcasting's ROCE Trend?

TianJin 712 Communication & Broadcasting is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. 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 135%. So we're very much inspired by what we're seeing at TianJin 712 Communication & Broadcasting thanks to its ability to profitably reinvest capital.

On a side note, TianJin 712 Communication & Broadcasting's current liabilities are still rather high at 46% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In summary, it's great to see that TianJin 712 Communication & Broadcasting can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 46% return over the last five years. In light of that, we think it's worth looking further into this stock because if TianJin 712 Communication & Broadcasting can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 603712 that compares the share price and estimated value.

While TianJin 712 Communication & Broadcasting isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.