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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Shanghai Golden Bridge Info TechLtd (SHSE:603918), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Shanghai Golden Bridge Info TechLtd is:

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

0.065 = CN¥72m ÷ (CN¥1.6b - CN¥512m) (Based on the trailing twelve months to March 2022).

Thus, Shanghai Golden Bridge Info TechLtd has an ROCE of 6.5%. On its own that's a low return, but compared to the average of 4.6% generated by the Software industry, it's much better.

See our latest analysis for Shanghai Golden Bridge Info TechLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shanghai Golden Bridge Info TechLtd's ROCE against it's prior returns. If you're interested in investigating Shanghai Golden Bridge Info TechLtd's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Shanghai Golden Bridge Info TechLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 123% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Shanghai Golden Bridge Info TechLtd's ROCE

In summary, Shanghai Golden Bridge Info TechLtd has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 37% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing Shanghai Golden Bridge Info TechLtd, we've discovered 2 warning signs that you should be aware of.

While Shanghai Golden Bridge Info TechLtd 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.