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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Zhejiang Guyuelongshan Shaoxing WineLtd (SHSE:600059) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Zhejiang Guyuelongshan Shaoxing WineLtd is:

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

0.037 = CN¥218m ÷ (CN¥6.4b - CN¥595m) (Based on the trailing twelve months to June 2024).

Therefore, Zhejiang Guyuelongshan Shaoxing WineLtd has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 16%.

Above you can see how the current ROCE for Zhejiang Guyuelongshan Shaoxing WineLtd 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 Zhejiang Guyuelongshan Shaoxing WineLtd for free.

What Does the ROCE Trend For Zhejiang Guyuelongshan Shaoxing WineLtd Tell Us?

The returns on capital haven't changed much for Zhejiang Guyuelongshan Shaoxing WineLtd in recent years. The company has employed 41% more capital in the last five years, and the returns on that capital have remained stable at 3.7%. 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.

In Conclusion...

In conclusion, Zhejiang Guyuelongshan Shaoxing WineLtd has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Zhejiang Guyuelongshan Shaoxing WineLtd has the makings of a multi-bagger.

Zhejiang Guyuelongshan Shaoxing WineLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.