Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Emei Shan TourismLtd (SZSE:000888) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. Analysts use this formula to calculate it for Emei Shan TourismLtd:

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

0.11 = CN¥337m ÷ (CN¥3.3b - CN¥263m) (Based on the trailing twelve months to March 2024).

Therefore, Emei Shan TourismLtd has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

Above you can see how the current ROCE for Emei Shan TourismLtd 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 Emei Shan TourismLtd for free.

How Are Returns Trending?

Over the past five years, Emei Shan TourismLtd's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Emei Shan TourismLtd doesn't end up being a multi-bagger in a few years time. This probably explains why Emei Shan TourismLtd is paying out 30% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

What We Can Learn From Emei Shan TourismLtd's ROCE

We can conclude that in regards to Emei Shan TourismLtd's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 83% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Emei Shan TourismLtd does have some risks though, and we've spotted 3 warning signs for Emei Shan TourismLtd that you might be interested in.

While Emei Shan TourismLtd 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.

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