To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Anji Microelectronics Technology (Shanghai)'s (SHSE:688019) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Anji Microelectronics Technology (Shanghai), this is the formula:

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

0.11 = CN¥154m ÷ (CN¥1.7b - CN¥297m) (Based on the trailing twelve months to March 2022).

So, Anji Microelectronics Technology (Shanghai) has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Semiconductor industry.

View our latest analysis for Anji Microelectronics Technology (Shanghai)

Above you can see how the current ROCE for Anji Microelectronics Technology (Shanghai) compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Anji Microelectronics Technology (Shanghai) Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 401% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Anji Microelectronics Technology (Shanghai) has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Anji Microelectronics Technology (Shanghai) has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 22% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Anji Microelectronics Technology (Shanghai) (of which 1 is significant!) that you should know about.

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.