If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Hebei Sinopack Electronic TechnologyLtd (SZSE:003031), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hebei Sinopack Electronic TechnologyLtd is:

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

0.093 = CN¥575m ÷ (CN¥7.3b - CN¥1.1b) (Based on the trailing twelve months to December 2023).

So, Hebei Sinopack Electronic TechnologyLtd has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the Electronic industry average of 5.2%.

In the above chart we have measured Hebei Sinopack Electronic TechnologyLtd'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 Hebei Sinopack Electronic TechnologyLtd .

What Can We Tell From Hebei Sinopack Electronic TechnologyLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at Hebei Sinopack Electronic TechnologyLtd. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 1,098% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

Long story short, while Hebei Sinopack Electronic TechnologyLtd has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 9.7% in the last three years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know about the risks facing Hebei Sinopack Electronic TechnologyLtd, we've discovered 1 warning sign that you should be aware of.

While Hebei Sinopack Electronic TechnologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.