Tofflon Science and Technology Group (SZSE:300171) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Tofflon Science and Technology Group (SZSE:300171) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Tofflon Science and Technology Group, this is the formula:

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

0.099 = CN¥807m ÷ (CN¥13b - CN¥4.9b) (Based on the trailing twelve months to September 2023).

Thus, Tofflon Science and Technology Group has an ROCE of 9.9%. On its own, that's a low figure but it's around the 9.2% average generated by the Medical Equipment industry.

View our latest analysis for Tofflon Science and Technology Group

In the above chart we have measured Tofflon Science and Technology Group'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 Tofflon Science and Technology Group .

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.9%. The amount of capital employed has increased too, by 159%. So we're very much inspired by what we're seeing at Tofflon Science and Technology Group thanks to its ability to profitably reinvest capital.

Our Take On Tofflon Science and Technology Group's ROCE

To sum it up, Tofflon Science and Technology Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 42% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Tofflon Science and Technology Group can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Tofflon Science and Technology Group, we've spotted 2 warning signs, and 1 of them is concerning.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.