If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Zhongjin Irradiation's (SZSE:300962) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Zhongjin Irradiation is:

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

0.11 = CN¥117m ÷ (CN¥1.1b - CN¥66m) (Based on the trailing twelve months to September 2024).

So, Zhongjin Irradiation has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 9.0% it's much better.

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

What Does the ROCE Trend For Zhongjin Irradiation Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 58% more capital into its operations. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Zhongjin Irradiation has proven its ability to adequately reinvest capital at good rates of return. Yet over the last three years the stock has declined 11%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

On a final note, we've found 1 warning sign for Zhongjin Irradiation that we think you should be aware of.

While Zhongjin Irradiation isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.