Returns At XDC Industries (Shenzhen) (SZSE:300615) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 on that note, XDC Industries (Shenzhen) (SZSE:300615) 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. Analysts use this formula to calculate it for XDC Industries (Shenzhen):

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

0.059 = CN¥34m ÷ (CN¥682m - CN¥114m) (Based on the trailing twelve months to March 2024).

Therefore, XDC Industries (Shenzhen) has an ROCE of 5.9%. On its own, that's a low figure but it's around the 5.2% average generated by the Electronic industry.

See our latest analysis for XDC Industries (Shenzhen)

Historical performance is a great place to start when researching a stock so above you can see the gauge for XDC Industries (Shenzhen)'s ROCE against it's prior returns. If you're interested in investigating XDC Industries (Shenzhen)'s past further, check out this free graph covering XDC Industries (Shenzhen)'s past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From XDC Industries (Shenzhen)'s ROCE

All in all, it's terrific to see that XDC Industries (Shenzhen) is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 43% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 3 warning signs with XDC Industries (Shenzhen) (at least 1 which can't be ignored) , and understanding them would certainly be useful.

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.