What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Chongqing Fuling Zhacai Group (SZSE:002507), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Chongqing Fuling Zhacai Group is:

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

0.095 = CN¥824m ÷ (CN¥9.1b - CN¥442m) (Based on the trailing twelve months to September 2024).

Therefore, Chongqing Fuling Zhacai Group has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Food industry average of 6.8%.

In the above chart we have measured Chongqing Fuling Zhacai Group'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 Chongqing Fuling Zhacai Group .

The Trend Of ROCE

On the surface, the trend of ROCE at Chongqing Fuling Zhacai Group doesn't inspire confidence. Around five years ago the returns on capital were 25%, but since then they've fallen to 9.5%. However it looks like Chongqing Fuling Zhacai Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Chongqing Fuling Zhacai Group's ROCE

To conclude, we've found that Chongqing Fuling Zhacai Group is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know about the risks facing Chongqing Fuling Zhacai Group, we've discovered 1 warning sign that you should be aware of.

While Chongqing Fuling Zhacai 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.