Returns Are Gaining Momentum At ShenZhen Woer Heat-Shrinkable MaterialLtd (SZSE:002130)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, ShenZhen Woer Heat-Shrinkable MaterialLtd (SZSE:002130) looks quite promising in regards to its trends of return on capital.

What Is 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. To calculate this metric for ShenZhen Woer Heat-Shrinkable MaterialLtd, this is the formula:

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

0.16 = CN¥1.1b ÷ (CN¥9.8b - CN¥2.6b) (Based on the trailing twelve months to September 2024).

Therefore, ShenZhen Woer Heat-Shrinkable MaterialLtd has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 5.8% generated by the Electrical industry.

View our latest analysis for ShenZhen Woer Heat-Shrinkable MaterialLtd

In the above chart we have measured ShenZhen Woer Heat-Shrinkable MaterialLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for ShenZhen Woer Heat-Shrinkable MaterialLtd .

The Trend Of ROCE

The trends we've noticed at ShenZhen Woer Heat-Shrinkable MaterialLtd are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 71%. 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

All in all, it's terrific to see that ShenZhen Woer Heat-Shrinkable MaterialLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 331% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

ShenZhen Woer Heat-Shrinkable MaterialLtd does have some risks though, and we've spotted 2 warning signs for ShenZhen Woer Heat-Shrinkable MaterialLtd that you might be interested in.

While ShenZhen Woer Heat-Shrinkable MaterialLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.