If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Fufeng Group's (HKG:546) look very promising so lets take a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Fufeng Group, this is the formula:

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

0.22 = CN¥3.9b ÷ (CN¥27b - CN¥8.8b) (Based on the trailing twelve months to June 2023).

Therefore, Fufeng Group has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.

In the above chart we have measured Fufeng Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Fufeng Group here for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Fufeng Group. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 65%. So we're very much inspired by what we're seeing at Fufeng Group thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Fufeng Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 80% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 1 warning sign facing Fufeng Group that you might find interesting.

Fufeng Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.