There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Anji Microelectronics Technology (Shanghai)'s (SHSE:688019) returns on capital, so let's have a look.

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. To calculate this metric for Anji Microelectronics Technology (Shanghai), this is the formula:

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

0.14 = CN¥346m ÷ (CN¥2.7b - CN¥204m) (Based on the trailing twelve months to March 2024).

So, Anji Microelectronics Technology (Shanghai) has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 3.9% generated by the Semiconductor industry.

In the above chart we have measured Anji Microelectronics Technology (Shanghai)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Anji Microelectronics Technology (Shanghai) .

What The Trend Of ROCE Can Tell Us

Anji Microelectronics Technology (Shanghai) is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 567%. So we're very much inspired by what we're seeing at Anji Microelectronics Technology (Shanghai) thanks to its ability to profitably reinvest capital.

What We Can Learn From Anji Microelectronics Technology (Shanghai)'s ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Anji Microelectronics Technology (Shanghai) has. Since the total return from the stock has been almost flat over the last three years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Anji Microelectronics Technology (Shanghai) does come with some risks, and we've found 1 warning sign that you should be aware of.

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