Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating NORINCO International Cooperation (SZSE:000065), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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 NORINCO International Cooperation is:

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

0.082 = CN¥1.2b ÷ (CN¥22b - CN¥7.6b) (Based on the trailing twelve months to September 2023).

So, NORINCO International Cooperation has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Construction industry average of 6.8%.

Check out our latest analysis for NORINCO International Cooperation

Above you can see how the current ROCE for NORINCO International Cooperation 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 NORINCO International Cooperation.

What Can We Tell From NORINCO International Cooperation's ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 13% five years ago, while the business's capital employed increased by 156%. Usually this isn't ideal, but given NORINCO International Cooperation conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence NORINCO International Cooperation might not have received a full period of earnings contribution from it.

On a side note, NORINCO International Cooperation has done well to pay down its current liabilities to 35% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On NORINCO International Cooperation's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that NORINCO International Cooperation is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 62% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we've found 1 warning sign for NORINCO International Cooperation that we think you should be aware of.

While NORINCO International Cooperation 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.