If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Urovo Technology (SZSE:300531), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Urovo Technology, this is the formula:

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

0.033 = CN¥50m ÷ (CN¥2.3b - CN¥795m) (Based on the trailing twelve months to September 2024).

Therefore, Urovo Technology has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.8%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Urovo Technology's ROCE against it's prior returns. If you'd like to look at how Urovo Technology has performed in the past in other metrics, you can view this free graph of Urovo Technology's past earnings, revenue and cash flow.

So How Is Urovo Technology's ROCE Trending?

When we looked at the ROCE trend at Urovo Technology, we didn't gain much confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 3.3%. However it looks like Urovo Technology might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Urovo Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 0.7% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Urovo Technology, we've discovered 2 warning signs that you should be aware of.

While Urovo Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.