If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Gold cup Electric ApparatusLtd's (SZSE:002533) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Gold cup Electric ApparatusLtd is:

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

0.14 = CN¥733m ÷ (CN¥8.3b - CN¥3.0b) (Based on the trailing twelve months to March 2024).

Therefore, Gold cup Electric ApparatusLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Electrical industry.

Above you can see how the current ROCE for Gold cup Electric ApparatusLtd 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 Gold cup Electric ApparatusLtd .

How Are Returns Trending?

The trends we've noticed at Gold cup Electric ApparatusLtd are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 87%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Gold cup Electric ApparatusLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 130% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Gold cup Electric ApparatusLtd can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Gold cup Electric ApparatusLtd you'll probably want to know about.

While Gold cup Electric ApparatusLtd 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.