If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Bear Electric ApplianceLtd (SZSE:002959), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 Bear Electric ApplianceLtd is:

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

0.11 = CN¥349m ÷ (CN¥5.0b - CN¥1.8b) (Based on the trailing twelve months to June 2024).

So, Bear Electric ApplianceLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Consumer Durables industry.

Above you can see how the current ROCE for Bear Electric ApplianceLtd 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 Bear Electric ApplianceLtd .

So How Is Bear Electric ApplianceLtd's ROCE Trending?

When we looked at the ROCE trend at Bear Electric ApplianceLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 11% from 26% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Bear Electric ApplianceLtd's ROCE

In summary, Bear Electric ApplianceLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Bear Electric ApplianceLtd has the makings of a multi-bagger.

On a final note, we found 2 warning signs for Bear Electric ApplianceLtd (1 is a bit concerning) you should be aware of.

While Bear Electric ApplianceLtd 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.