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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think GDH Supertime Group (SZSE:001338) 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)

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. To calculate this metric for GDH Supertime Group, this is the formula:

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

0.048 = CN¥160m ÷ (CN¥4.7b - CN¥1.3b) (Based on the trailing twelve months to September 2023).

So, GDH Supertime Group has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 13%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for GDH Supertime Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of GDH Supertime Group.

How Are Returns Trending?

In terms of GDH Supertime Group's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.7% over the last four years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From GDH Supertime Group's 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 GDH Supertime Group. And there could be an opportunity here if other metrics look good too, because the stock has declined 42% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we've found 1 warning sign for GDH Supertime Group that we think you should be aware of.

While GDH Supertime Group 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.