Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Harbin Jiuzhou GroupLtd (SZSE:300040) and its ROCE trend, we weren't exactly thrilled.

What Is 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 Harbin Jiuzhou GroupLtd:

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

0.025 = CN¥153m ÷ (CN¥7.4b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

Therefore, Harbin Jiuzhou GroupLtd has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 6.0%.

Above you can see how the current ROCE for Harbin Jiuzhou GroupLtd 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 analyst report for Harbin Jiuzhou GroupLtd .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Harbin Jiuzhou GroupLtd, we didn't gain much confidence. Around five years ago the returns on capital were 5.2%, but since then they've fallen to 2.5%. However it looks like Harbin Jiuzhou GroupLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Harbin Jiuzhou GroupLtd's ROCE

To conclude, we've found that Harbin Jiuzhou GroupLtd is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 39% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing: We've identified 4 warning signs with Harbin Jiuzhou GroupLtd (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com