Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of CIMC Enric Holdings (HKG:3899) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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 CIMC Enric Holdings, this is the formula:

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

0.11 = CN¥1.4b ÷ (CN¥24b - CN¥11b) (Based on the trailing twelve months to June 2023).

Thus, CIMC Enric Holdings has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.4% it's much better.

Above you can see how the current ROCE for CIMC Enric Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for CIMC Enric Holdings .

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 86% in that time. 11% is a pretty standard return, and it provides some comfort knowing that CIMC Enric Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Another thing to note, CIMC Enric Holdings has a high ratio of current liabilities to total assets of 48%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On CIMC Enric Holdings' ROCE

In the end, CIMC Enric Holdings has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 3.9% return to shareholders who held over that period. So to determine if CIMC Enric Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

CIMC Enric Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 3899 on our platform quite valuable.

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.

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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.