There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Suzhou YourBest New-type MaterialsLtd (SZSE:301266) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Suzhou YourBest New-type MaterialsLtd:

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

0.066 = CN¥134m ÷ (CN¥3.4b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

Therefore, Suzhou YourBest New-type MaterialsLtd has an ROCE of 6.6%. On its own that's a low return, but compared to the average of 5.4% generated by the Electronic industry, it's much better.

Above you can see how the current ROCE for Suzhou YourBest New-type MaterialsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Suzhou YourBest New-type MaterialsLtd .

So How Is Suzhou YourBest New-type MaterialsLtd's ROCE Trending?

When we looked at the ROCE trend at Suzhou YourBest New-type MaterialsLtd, we didn't gain much confidence. Around five years ago the returns on capital were 12%, but since then they've fallen to 6.6%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Suzhou YourBest New-type MaterialsLtd. However, despite the promising trends, the stock has fallen 36% over the last year, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we found 4 warning signs for Suzhou YourBest New-type MaterialsLtd (1 is potentially serious) you should be aware of.

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.