There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Changbai Mountain Tourism's (SHSE:603099) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Changbai Mountain Tourism, this is the formula:

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

0.16 = CN¥193m ÷ (CN¥1.4b - CN¥158m) (Based on the trailing twelve months to September 2024).

Thus, Changbai Mountain Tourism has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Hospitality industry.

In the above chart we have measured Changbai Mountain Tourism's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Changbai Mountain Tourism for free.

What Can We Tell From Changbai Mountain Tourism's ROCE Trend?

Changbai Mountain Tourism has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 98% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Changbai Mountain Tourism's ROCE

To sum it up, Changbai Mountain Tourism is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 335% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Changbai Mountain Tourism looks impressive, no company is worth an infinite price. The intrinsic value infographic for 603099 helps visualize whether it is currently trading for a fair price.

While Changbai Mountain Tourism 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.