If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Aecc Aero-Engine ControlLtd (SZSE:000738) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Aecc Aero-Engine ControlLtd, this is the formula:

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

0.057 = CN¥745m ÷ (CN¥16b - CN¥3.2b) (Based on the trailing twelve months to September 2024).

Thus, Aecc Aero-Engine ControlLtd has an ROCE of 5.7%. On its own that's a low return, but compared to the average of 4.4% generated by the Aerospace & Defense industry, it's much better.

In the above chart we have measured Aecc Aero-Engine ControlLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Aecc Aero-Engine ControlLtd .

What Can We Tell From Aecc Aero-Engine ControlLtd's ROCE Trend?

In terms of Aecc Aero-Engine ControlLtd's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 5.7% and the business has deployed 114% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, Aecc Aero-Engine ControlLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 85% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for Aecc Aero-Engine ControlLtd you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.