If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Bethel Automotive Safety Systems (SHSE:603596) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Bethel Automotive Safety Systems:

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

0.13 = CN¥811m ÷ (CN¥9.8b - CN¥3.7b) (Based on the trailing twelve months to September 2023).

Thus, Bethel Automotive Safety Systems has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 5.9% it's much better.

In the above chart we have measured Bethel Automotive Safety Systems' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Bethel Automotive Safety Systems .

How Are Returns Trending?

In terms of Bethel Automotive Safety Systems' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 19% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Bethel Automotive Safety Systems' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Bethel Automotive Safety Systems is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 166% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Bethel Automotive Safety Systems we've found 2 warning signs (1 can't be ignored!) 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.