There are a few key trends to look for if we want to identify the next multi-bagger. 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 looked at Kunshan GuoLi Electronic Technology (SHSE:688103) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Kunshan GuoLi Electronic Technology:

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

0.015 = CN¥23m ÷ (CN¥2.1b - CN¥537m) (Based on the trailing twelve months to September 2024).

Thus, Kunshan GuoLi Electronic Technology has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 5.8%.

Above you can see how the current ROCE for Kunshan GuoLi Electronic Technology 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 Kunshan GuoLi Electronic Technology .

So How Is Kunshan GuoLi Electronic Technology's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 1.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 193% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Kunshan GuoLi Electronic Technology's ROCE

To sum it up, Kunshan GuoLi Electronic Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 48% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Kunshan GuoLi Electronic Technology does come with some risks, and we've found 3 warning signs that you should be aware of.

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.

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.