If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Tianjin LVYIN Landscape and Ecology Construction (SZSE:002887), 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 Tianjin LVYIN Landscape and Ecology Construction, this is the formula:

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

0.0095 = CN¥36m ÷ (CN¥4.2b - CN¥462m) (Based on the trailing twelve months to September 2024).

So, Tianjin LVYIN Landscape and Ecology Construction has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 6.1%.

Above you can see how the current ROCE for Tianjin LVYIN Landscape and Ecology Construction 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 Tianjin LVYIN Landscape and Ecology Construction .

How Are Returns Trending?

In terms of Tianjin LVYIN Landscape and Ecology Construction's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.9% from 8.1% 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Tianjin LVYIN Landscape and Ecology Construction's ROCE

In summary, Tianjin LVYIN Landscape and Ecology Construction 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 19% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Tianjin LVYIN Landscape and Ecology Construction has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing Tianjin LVYIN Landscape and Ecology Construction that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.