If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating Zoomlion Heavy Industry Science and Technology (SZSE:000157), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Zoomlion Heavy Industry Science and Technology:

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

0.037 = CN¥3.0b ÷ (CN¥131b - CN¥50b) (Based on the trailing twelve months to December 2023).

Thus, Zoomlion Heavy Industry Science and Technology has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 6.3%.

Above you can see how the current ROCE for Zoomlion Heavy Industry Science and Technology 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 Zoomlion Heavy Industry Science and Technology .

What Does the ROCE Trend For Zoomlion Heavy Industry Science and Technology Tell Us?

On the surface, the trend of ROCE at Zoomlion Heavy Industry Science and Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 5.5% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Zoomlion Heavy Industry Science and Technology's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Zoomlion Heavy Industry Science and Technology is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 133% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Zoomlion Heavy Industry Science and Technology, we've discovered 3 warning signs that you should be aware of.

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.

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.