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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Xinyi Electric Storage Holdings' (HKG:8328) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Xinyi Electric Storage Holdings, this is the formula:

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

0.10 = HK$92m ÷ (HK$1.4b - HK$544m) (Based on the trailing twelve months to March 2022).

Thus, Xinyi Electric Storage Holdings has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 8.2% it's much better.

Check out our latest analysis for Xinyi Electric Storage Holdings

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

What Does the ROCE Trend For Xinyi Electric Storage Holdings Tell Us?

We like the trends that we're seeing from Xinyi Electric Storage Holdings. The data shows that returns on capital have increased substantially over the last five years to 10%. 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 782%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Xinyi Electric Storage Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 326% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 2 warning signs for Xinyi Electric Storage Holdings that we think you should be aware of.

While Xinyi Electric Storage 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.