Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at CIMC Vehicles (Group) (SZSE:301039), it didn't seem to tick all of these boxes.

Understanding 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 CIMC Vehicles (Group), this is the formula:

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

0.076 = CN¥1.1b ÷ (CN¥24b - CN¥9.1b) (Based on the trailing twelve months to September 2024).

Thus, CIMC Vehicles (Group) has an ROCE of 7.6%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.2%.

In the above chart we have measured CIMC Vehicles (Group)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for CIMC Vehicles (Group) .

What Does the ROCE Trend For CIMC Vehicles (Group) Tell Us?

On the surface, the trend of ROCE at CIMC Vehicles (Group) doesn't inspire confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 7.6%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On CIMC Vehicles (Group)'s ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for CIMC Vehicles (Group) have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last three years have experienced a 29% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

CIMC Vehicles (Group) does have some risks though, and we've spotted 2 warning signs for CIMC Vehicles (Group) that you might be interested in.

While CIMC Vehicles (Group) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.