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. However, after briefly looking over the numbers, we don't think Zhejiang Sunoren Solar TechnologyLtd (SHSE:603105) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Zhejiang Sunoren Solar TechnologyLtd is:

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

0.098 = CN¥292m ÷ (CN¥3.7b - CN¥748m) (Based on the trailing twelve months to September 2023).

Thus, Zhejiang Sunoren Solar TechnologyLtd has an ROCE of 9.8%. On its own that's a low return, but compared to the average of 4.2% generated by the Semiconductor industry, it's much better.

View our latest analysis for Zhejiang Sunoren Solar TechnologyLtd

Above you can see how the current ROCE for Zhejiang Sunoren Solar TechnologyLtd 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 report for Zhejiang Sunoren Solar TechnologyLtd.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Zhejiang Sunoren Solar TechnologyLtd. The company has consistently earned 9.8% for the last five years, and the capital employed within the business has risen 64% 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 Zhejiang Sunoren Solar TechnologyLtd's ROCE

In conclusion, Zhejiang Sunoren Solar TechnologyLtd has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Like most companies, Zhejiang Sunoren Solar TechnologyLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.