Zhejiang Crystal-Optech (SZSE:002273) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Zhejiang Crystal-Optech (SZSE:002273) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Zhejiang Crystal-Optech, this is the formula:

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

0.10 = CN¥958m ÷ (CN¥12b - CN¥2.1b) (Based on the trailing twelve months to September 2024).

Therefore, Zhejiang Crystal-Optech has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 5.5% it's much better.

View our latest analysis for Zhejiang Crystal-Optech

In the above chart we have measured Zhejiang Crystal-Optech'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 Zhejiang Crystal-Optech .

So How Is Zhejiang Crystal-Optech's ROCE Trending?

Zhejiang Crystal-Optech is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 74%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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 Zhejiang Crystal-Optech has. Since the stock has returned a solid 85% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Zhejiang Crystal-Optech that you might find interesting.

While Zhejiang Crystal-Optech 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.