There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Jonjee Hi-Tech Industrial and Commercial HoldingLtd (SHSE:600872) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Jonjee Hi-Tech Industrial and Commercial HoldingLtd is:

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

0.14 = CN¥786m ÷ (CN¥7.5b - CN¥1.8b) (Based on the trailing twelve months to September 2024).

Thus, Jonjee Hi-Tech Industrial and Commercial HoldingLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 6.8% it's much better.

In the above chart we have measured Jonjee Hi-Tech Industrial and Commercial HoldingLtd'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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd .

So How Is Jonjee Hi-Tech Industrial and Commercial HoldingLtd's ROCE Trending?

In terms of Jonjee Hi-Tech Industrial and Commercial HoldingLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 14% from 20% five years ago. 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'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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd's ROCE

In summary, Jonjee Hi-Tech Industrial and Commercial HoldingLtd 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 34% 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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd we've found 3 warning signs (2 are a bit concerning!) that you should be aware of before investing here.

While Jonjee Hi-Tech Industrial and Commercial HoldingLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.