What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Dalian BIO-CHEM (SHSE:603360) we really liked what we saw.

What Is 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 Dalian BIO-CHEM, this is the formula:

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

0.22 = CN¥395m ÷ (CN¥2.1b - CN¥321m) (Based on the trailing twelve months to March 2024).

So, Dalian BIO-CHEM has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 5.5% earned by companies in a similar industry.

In the above chart we have measured Dalian BIO-CHEM's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Dalian BIO-CHEM .

What Can We Tell From Dalian BIO-CHEM's ROCE Trend?

Investors would be pleased with what's happening at Dalian BIO-CHEM. Over the last five years, returns on capital employed have risen substantially to 22%. 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 101%. So we're very much inspired by what we're seeing at Dalian BIO-CHEM thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Dalian BIO-CHEM is reaping the rewards from prior investments and is growing its capital base. And with a respectable 42% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Dalian BIO-CHEM does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.