If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Beingmate (SZSE:002570) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Beingmate:

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

0.063 = CN¥103m ÷ (CN¥3.6b - CN¥2.0b) (Based on the trailing twelve months to September 2024).

Thus, Beingmate has an ROCE of 6.3%. On its own, that's a low figure but it's around the 6.8% average generated by the Food industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Beingmate has performed in the past in other metrics, you can view this free graph of Beingmate's past earnings, revenue and cash flow.

How Are Returns Trending?

It's great to see that Beingmate has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 6.3% on their capital employed. Additionally, the business is utilizing 27% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Beingmate could be selling under-performing assets since the ROCE is improving.

On a side note, Beingmate's current liabilities are still rather high at 55% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Beingmate's ROCE

In summary, it's great to see that Beingmate has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 4.7% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Beingmate (including 1 which is concerning) .

While Beingmate 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.