Capital Investment Trends At Zhejiang Meida Industrial (SZSE:002677) Look Strong

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Zhejiang Meida Industrial's (SZSE:002677) trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Zhejiang Meida Industrial is:

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

0.21 = CN¥443m ÷ (CN¥2.3b - CN¥252m) (Based on the trailing twelve months to March 2023).

So, Zhejiang Meida Industrial has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 8.5% earned by companies in a similar industry.

Check out our latest analysis for Zhejiang Meida Industrial

Above you can see how the current ROCE for Zhejiang Meida Industrial compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zhejiang Meida Industrial .

So How Is Zhejiang Meida Industrial's ROCE Trending?

It's hard not to be impressed by Zhejiang Meida Industrial's returns on capital. Over the past five years, ROCE has remained relatively flat at around 21% and the business has deployed 52% more capital into its operations. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

What We Can Learn From Zhejiang Meida Industrial's ROCE

In summary, we're delighted to see that Zhejiang Meida Industrial has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last five years the stock has declined 20%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002677 on our platform that is definitely worth checking out.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.