If you're looking for a multi-bagger, there's a few things to keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Chongqing Baiya Sanitary Products' (SZSE:003006) look very promising so lets take 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 Chongqing Baiya Sanitary Products, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = CN¥267m ÷ (CN¥1.7b - CN¥397m) (Based on the trailing twelve months to June 2023).
So, Chongqing Baiya Sanitary Products has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.
View our latest analysis for Chongqing Baiya Sanitary Products
In the above chart we have measured Chongqing Baiya Sanitary Products' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Chongqing Baiya Sanitary Products' ROCE Trending?
Chongqing Baiya Sanitary Products is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 111% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From Chongqing Baiya Sanitary Products' ROCE
In summary, it's great to see that Chongqing Baiya Sanitary Products can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 26% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
If you'd like to know about the risks facing Chongqing Baiya Sanitary Products, we've discovered 1 warning sign that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.