If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Kuaijishan Shaoxing Rice Wine (SHSE:601579) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Kuaijishan Shaoxing Rice Wine, this is the formula:

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

0.058 = CN¥221m ÷ (CN¥4.4b - CN¥587m) (Based on the trailing twelve months to March 2024).

Therefore, Kuaijishan Shaoxing Rice Wine has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Beverage industry average of 17%.

In the above chart we have measured Kuaijishan Shaoxing Rice Wine's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kuaijishan Shaoxing Rice Wine .

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Kuaijishan Shaoxing Rice Wine, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Kuaijishan Shaoxing Rice Wine to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Kuaijishan Shaoxing Rice Wine has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 48% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 1 warning sign facing Kuaijishan Shaoxing Rice Wine that you might find interesting.

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.

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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.