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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of China Shanshui Cement Group (HKG:691) looks great, so lets see what the trend can tell us.

What is 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. The formula for this calculation on China Shanshui Cement Group is:

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

0.26 = CN¥5.0b ÷ (CN¥29b - CN¥9.3b) (Based on the trailing twelve months to December 2021).

Thus, China Shanshui Cement Group has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

View our latest analysis for China Shanshui Cement Group

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

So How Is China Shanshui Cement Group's ROCE Trending?

Investors would be pleased with what's happening at China Shanshui Cement Group. Over the last five years, returns on capital employed have risen substantially to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 419%. So we're very much inspired by what we're seeing at China Shanshui Cement Group thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 32%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On China Shanshui Cement Group's 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 Shanshui Cement Group has. And since the stock has fallen 44% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

China Shanshui Cement Group does have some risks though, and we've spotted 1 warning sign for China Shanshui Cement Group that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.