If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Jiangsu Hengshun Vinegar-IndustryLtd (SHSE:600305) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jiangsu Hengshun Vinegar-IndustryLtd, this is the formula:

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

0.022 = CN¥76m ÷ (CN¥4.1b - CN¥665m) (Based on the trailing twelve months to September 2024).

Therefore, Jiangsu Hengshun Vinegar-IndustryLtd has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

Above you can see how the current ROCE for Jiangsu Hengshun Vinegar-IndustryLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Jiangsu Hengshun Vinegar-IndustryLtd .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Jiangsu Hengshun Vinegar-IndustryLtd doesn't inspire confidence. Around five years ago the returns on capital were 12%, but since then they've fallen to 2.2%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Jiangsu Hengshun Vinegar-IndustryLtd's ROCE

In summary, Jiangsu Hengshun Vinegar-IndustryLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 24% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Jiangsu Hengshun Vinegar-IndustryLtd we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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.