If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Lecron Industrial Development Group (SZSE:300343) 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. The formula for this calculation on Lecron Industrial Development Group is:

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

0.49 = CN¥808m ÷ (CN¥2.1b - CN¥511m) (Based on the trailing twelve months to March 2022).

Thus, Lecron Industrial Development Group has an ROCE of 49%. That's a fantastic return and not only that, it outpaces the average of 7.0% earned by companies in a similar industry.

Check out our latest analysis for Lecron Industrial Development Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lecron Industrial Development Group's ROCE against it's prior returns. If you're interested in investigating Lecron Industrial Development Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Lecron Industrial Development Group Tell Us?

We're pretty happy with how the ROCE has been trending at Lecron Industrial Development Group. We found that the returns on capital employed over the last five years have risen by 645%. The company is now earning CN¥0.5 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 60% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In a nutshell, we're pleased to see that Lecron Industrial Development Group has been able to generate higher returns from less capital. Since the stock has only returned 24% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to know some of the risks facing Lecron Industrial Development Group we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.