What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at the ROCE trend of Zhejiang Cayi Vacuum Container (SZSE:301004) we really liked what we saw.

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

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 Zhejiang Cayi Vacuum Container, this is the formula:

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

0.45 = CN¥764m ÷ (CN¥2.3b - CN¥589m) (Based on the trailing twelve months to September 2024).

So, Zhejiang Cayi Vacuum Container has an ROCE of 45%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

Above you can see how the current ROCE for Zhejiang Cayi Vacuum Container compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang Cayi Vacuum Container .

What Does the ROCE Trend For Zhejiang Cayi Vacuum Container Tell Us?

We like the trends that we're seeing from Zhejiang Cayi Vacuum Container. The data shows that returns on capital have increased substantially over the last five years to 45%. Basically the business is earning more per dollar of capital invested and in addition to that, 449% more capital is being employed now too. So we're very much inspired by what we're seeing at Zhejiang Cayi Vacuum Container thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Zhejiang Cayi Vacuum Container can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 435% to shareholders over the last three 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 Cayi Vacuum Container can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Zhejiang Cayi Vacuum Container, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.