There are a few key trends to look for if we want to identify the next 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Yangzhou Yangjie Electronic Technology (SZSE:300373), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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 Yangzhou Yangjie Electronic Technology, this is the formula:

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

0.066 = CN¥670m ÷ (CN¥13b - CN¥3.1b) (Based on the trailing twelve months to March 2024).

So, Yangzhou Yangjie Electronic Technology has an ROCE of 6.6%. On its own that's a low return, but compared to the average of 4.1% generated by the Semiconductor industry, it's much better.

In the above chart we have measured Yangzhou Yangjie Electronic Technology'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 Yangzhou Yangjie Electronic Technology .

How Are Returns Trending?

The returns on capital haven't changed much for Yangzhou Yangjie Electronic Technology in recent years. The company has consistently earned 6.6% for the last five years, and the capital employed within the business has risen 291% 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 Yangzhou Yangjie Electronic Technology's ROCE

In conclusion, Yangzhou Yangjie Electronic Technology has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 134% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 2 warning signs facing Yangzhou Yangjie Electronic Technology 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.