If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Inner Mongolia North Hauler (SHSE:600262) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Inner Mongolia North Hauler:

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

0.096 = CN¥180m ÷ (CN¥3.8b - CN¥1.9b) (Based on the trailing twelve months to June 2024).

Thus, Inner Mongolia North Hauler has an ROCE of 9.6%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.5%.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Inner Mongolia North Hauler's past further, check out this free graph covering Inner Mongolia North Hauler's past earnings, revenue and cash flow.

What Does the ROCE Trend For Inner Mongolia North Hauler Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 9.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. So we're very much inspired by what we're seeing at Inner Mongolia North Hauler thanks to its ability to profitably reinvest capital.

Another thing to note, Inner Mongolia North Hauler has a high ratio of current liabilities to total assets of 51%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

To sum it up, Inner Mongolia North Hauler has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 2.4% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Inner Mongolia North Hauler does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While Inner Mongolia North Hauler isn't earning the highest return, check out this free list of companies that are 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.