What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Inner Mongolia OJing Science & Technology's (SZSE:001269) trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Inner Mongolia OJing Science & Technology, this is the formula:

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

0.25 = CN¥587m ÷ (CN¥3.5b - CN¥1.2b) (Based on the trailing twelve months to March 2024).

So, Inner Mongolia OJing Science & Technology has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 4.1% earned by companies in a similar industry.

Above you can see how the current ROCE for Inner Mongolia OJing Science & Technology 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 Inner Mongolia OJing Science & Technology .

What Can We Tell From Inner Mongolia OJing Science & Technology's ROCE Trend?

We'd be pretty happy with returns on capital like Inner Mongolia OJing Science & Technology. Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 617% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line On Inner Mongolia OJing Science & Technology's ROCE

In summary, we're delighted to see that Inner Mongolia OJing Science & Technology has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last year the stock has declined 49%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One final note, you should learn about the 2 warning signs we've spotted with Inner Mongolia OJing Science & Technology (including 1 which is a bit unpleasant) .

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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