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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Kaili Catalyst & New MaterialsLtd (SHSE:688269) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Kaili Catalyst & New MaterialsLtd is:

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

0.12 = CN¥126m ÷ (CN¥1.3b - CN¥270m) (Based on the trailing twelve months to December 2023).

Therefore, Kaili Catalyst & New MaterialsLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Chemicals industry.

Above you can see how the current ROCE for Kaili Catalyst & New MaterialsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kaili Catalyst & New MaterialsLtd .

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 20% five years ago, while capital employed has grown 301%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Kaili Catalyst & New MaterialsLtd might not have received a full period of earnings contribution from it.

In Conclusion...

In summary, Kaili Catalyst & New MaterialsLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 61% in the last year. Therefore based on the analysis done in this article, we don't think Kaili Catalyst & New MaterialsLtd has the makings of a multi-bagger.

If you'd like to know about the risks facing Kaili Catalyst & New MaterialsLtd, we've discovered 2 warning signs that you should be aware of.

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.