Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Golden Eagle Retail Group's (HKG:3308) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Golden Eagle Retail Group is:

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

0.14 = CN¥2.2b ÷ (CN¥25b - CN¥8.7b) (Based on the trailing twelve months to December 2021).

Thus, Golden Eagle Retail Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Multiline Retail industry average of 3.4% it's much better.

See our latest analysis for Golden Eagle Retail Group

In the above chart we have measured Golden Eagle Retail Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Golden Eagle Retail Group.

How Are Returns Trending?

Golden Eagle Retail Group has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 37% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Golden Eagle Retail Group's ROCE

To bring it all together, Golden Eagle Retail Group has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 29% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Golden Eagle Retail Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.