If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, China Resources Cement Holdings (HKG:1313) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on China Resources Cement Holdings is:

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

0.13 = HK$8.1b ÷ (HK$81b - HK$19b) (Based on the trailing twelve months to March 2022).

Thus, China Resources Cement Holdings has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Basic Materials industry.

See our latest analysis for China Resources Cement Holdings

In the above chart we have measured China Resources Cement Holdings' 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 report on analyst forecasts for the company.

What Can We Tell From China Resources Cement Holdings' ROCE Trend?

Investors would be pleased with what's happening at China Resources Cement Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 65%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On China Resources Cement Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what China Resources Cement Holdings has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 88% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing China Resources Cement Holdings that you might find interesting.

While China Resources Cement Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.