Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Zhejiang Daily Digital Culture GroupLtd (SHSE:600633), it didn't seem to tick all of these boxes.

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

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 Zhejiang Daily Digital Culture GroupLtd, this is the formula:

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

0.053 = CN¥583m ÷ (CN¥12b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang Daily Digital Culture GroupLtd has an ROCE of 5.3%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.

In the above chart we have measured Zhejiang Daily Digital Culture GroupLtd'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 Zhejiang Daily Digital Culture GroupLtd .

So How Is Zhejiang Daily Digital Culture GroupLtd's ROCE Trending?

The returns on capital haven't changed much for Zhejiang Daily Digital Culture GroupLtd in recent years. The company has consistently earned 5.3% for the last five years, and the capital employed within the business has risen 20% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Zhejiang Daily Digital Culture GroupLtd's ROCE

In summary, Zhejiang Daily Digital Culture GroupLtd has simply been reinvesting capital and generating the same low rate of return as before. And investors may be recognizing these trends since the stock has only returned a total of 37% 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.

One more thing, we've spotted 3 warning signs facing Zhejiang Daily Digital Culture GroupLtd that you might find interesting.

While Zhejiang Daily Digital Culture GroupLtd 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.