If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at HiVi Acoustics Technology (SZSE:002888) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 HiVi Acoustics Technology:

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

0.034 = CN¥14m ÷ (CN¥467m - CN¥41m) (Based on the trailing twelve months to March 2022).

Therefore, HiVi Acoustics Technology has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 10%.

Check out our latest analysis for HiVi Acoustics Technology

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 want to delve into the historical earnings, revenue and cash flow of HiVi Acoustics Technology, check out these free graphs here.

So How Is HiVi Acoustics Technology's ROCE Trending?

In terms of HiVi Acoustics Technology's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 15%, but since then they've fallen to 3.4%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that HiVi Acoustics Technology is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 16% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think HiVi Acoustics Technology has the makings of a multi-bagger.

One final note, you should learn about the 4 warning signs we've spotted with HiVi Acoustics Technology (including 2 which make us uncomfortable) .

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.