If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (SZSE:300826) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd:

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

0.024 = CN¥36m ÷ (CN¥2.4b - CN¥928m) (Based on the trailing twelve months to September 2024).

Thus, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 6.0%.

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 NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has performed in the past in other metrics, you can view this free graph of NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 14%, but since then they've fallen to 2.4%. However it looks like NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

On a related note, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd has decreased its current liabilities to 38% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

In Conclusion...

In summary, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 3.1% over the last three years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to know some of the risks facing NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd we've found 4 warning signs (1 is potentially serious!) that you should be aware of before investing here.

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.