What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think GRIPM Advanced Materials (SHSE:688456) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for GRIPM Advanced Materials:

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

0.048 = CN¥55m ÷ (CN¥1.6b - CN¥448m) (Based on the trailing twelve months to March 2022).

So, GRIPM Advanced Materials has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 9.5%.

View our latest analysis for GRIPM Advanced Materials

Historical performance is a great place to start when researching a stock so above you can see the gauge for GRIPM Advanced Materials' ROCE against it's prior returns. If you'd like to look at how GRIPM Advanced Materials has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is GRIPM Advanced Materials' ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 13% four years ago, while the business's capital employed increased by 135%. Usually this isn't ideal, but given GRIPM Advanced Materials conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. GRIPM Advanced Materials probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt. It's also worth noting the company's latest EBIT figure is within 10% of the previous year, so it's fair to assign the ROCE drop largely to the capital raise.

Our Take On GRIPM Advanced Materials' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for GRIPM Advanced Materials. However, despite the promising trends, the stock has fallen 12% over the last year, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

GRIPM Advanced Materials does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

While GRIPM Advanced Materials 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.