To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Zhejiang China Commodities City Group (SHSE:600415) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Zhejiang China Commodities City Group, this is the formula:

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

0.15 = CN¥3.3b ÷ (CN¥36b - CN¥15b) (Based on the trailing twelve months to September 2024).

So, Zhejiang China Commodities City Group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 3.9% generated by the Multiline Retail industry.

Above you can see how the current ROCE for Zhejiang China Commodities City Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Zhejiang China Commodities City Group for free.

What Does the ROCE Trend For Zhejiang China Commodities City Group Tell Us?

Zhejiang China Commodities City Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. So we're very much inspired by what we're seeing at Zhejiang China Commodities City Group thanks to its ability to profitably reinvest capital.

Another thing to note, Zhejiang China Commodities City Group has a high ratio of current liabilities to total assets of 41%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Zhejiang China Commodities City Group's ROCE

To sum it up, Zhejiang China Commodities City Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 260% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Zhejiang China Commodities City Group can keep these trends up, it could have a bright future ahead.

If you want to continue researching Zhejiang China Commodities City Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Zhejiang China Commodities City 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.