To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Jinduicheng Molybdenum (SHSE:601958) we really liked what we saw.

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. Analysts use this formula to calculate it for Jinduicheng Molybdenum:

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

0.23 = CN¥3.9b ÷ (CN¥19b - CN¥2.2b) (Based on the trailing twelve months to June 2024).

So, Jinduicheng Molybdenum has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 7.0% earned by companies in a similar industry.

Above you can see how the current ROCE for Jinduicheng Molybdenum 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 Jinduicheng Molybdenum .

So How Is Jinduicheng Molybdenum's ROCE Trending?

Jinduicheng Molybdenum's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 336% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Jinduicheng Molybdenum's ROCE

To sum it up, Jinduicheng Molybdenum is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 54% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Jinduicheng Molybdenum can keep these trends up, it could have a bright future ahead.

Jinduicheng Molybdenum does have some risks though, and we've spotted 1 warning sign for Jinduicheng Molybdenum that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.