What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, the ROCE of Shandong Pharmaceutical GlassLtd (SHSE:600529) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Shandong Pharmaceutical GlassLtd is:

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

0.12 = CN¥916m ÷ (CN¥9.6b - CN¥1.8b) (Based on the trailing twelve months to March 2024).

Thus, Shandong Pharmaceutical GlassLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 6.3% it's much better.

In the above chart we have measured Shandong Pharmaceutical GlassLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shandong Pharmaceutical GlassLtd for free.

What Can We Tell From Shandong Pharmaceutical GlassLtd's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 113% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Shandong Pharmaceutical GlassLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, Shandong Pharmaceutical GlassLtd has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 19% over the last five years for shareholders who have owned the stock in this period. So to determine if Shandong Pharmaceutical GlassLtd is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Shandong Pharmaceutical GlassLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 600529 on our platform quite valuable.

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.

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