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. 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. With that in mind, we’ve noticed some promising trends at Range Intelligent Computing Technology Group (SZSE:300442) so let’s look a bit deeper.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Range Intelligent Computing Technology Group:

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

0.085 = CN¥1.5b ÷ (CN¥22b – CN¥4.5b) (Based on the trailing twelve months to September 2023).

Therefore, Range Intelligent Computing Technology Group has an ROCE of 8.5%. In absolute terms, that’s a low return, but it’s much better than the Machinery industry average of 6.0%.

See our latest analysis for Range Intelligent Computing Technology Group

Above you can see how the current ROCE for Range Intelligent Computing Technology Group compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Range Intelligent Computing Technology Group for free.

What Can We Tell From Range Intelligent Computing Technology Group’s ROCE Trend?

Even though ROCE is still low in absolute terms, it’s good to see it’s heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.5%. The amount of capital employed has increased too, by 446%. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that’s what Range Intelligent Computing Technology Group has. Astute investors may have an opportunity here because the stock has declined 12% in the last year. That being the case, research into the company’s current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it’s worth knowing what they are, and we’ve spotted 3 warning signs for Range Intelligent Computing Technology Group (of which 1 is concerning!) that you should know about.

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.