If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Corbion (AMS:CRBN), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Corbion, this is the formula:

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

0.095 = €116m ÷ (€1.6b - €373m) (Based on the trailing twelve months to June 2024).

Therefore, Corbion has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Chemicals industry average of 9.8%.

See our latest analysis for Corbion

In the above chart we have measured Corbion'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 Corbion .

What The Trend Of ROCE Can Tell Us

In terms of Corbion's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.5% for the last five years, and the capital employed within the business has risen 65% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

Long story short, while Corbion has been reinvesting its capital, the returns that it's generating haven't increased. And in the last five years, the stock has given away 18% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to continue researching Corbion, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Corbion 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.