If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at SF Oilless Bearing Group (SZSE:300817) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on SF Oilless Bearing Group is:

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

0.064 = CN¥69m ÷ (CN¥1.3b - CN¥209m) (Based on the trailing twelve months to September 2024).

So, SF Oilless Bearing Group has an ROCE of 6.4%. On its own, that's a low figure but it's around the 5.4% average generated by the Machinery industry.

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 SF Oilless Bearing Group's past further, check out this free graph covering SF Oilless Bearing Group's past earnings, revenue and cash flow.

So How Is SF Oilless Bearing Group's ROCE Trending?

When we looked at the ROCE trend at SF Oilless Bearing Group, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 6.4%. 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. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SF Oilless Bearing Group. In light of this, the stock has only gained 14% over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for SF Oilless Bearing Group (of which 2 don't sit too well with us!) that you should know about.

While SF Oilless Bearing Group 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.