If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after investigating Liaoning Port (HKG:2880), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Liaoning Port, this is the formula:

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

0.038 = CN¥2.0b ÷ (CN¥60b - CN¥5.9b) (Based on the trailing twelve months to September 2024).

So, Liaoning Port has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.2%.

View our latest analysis for Liaoning Port

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

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Liaoning Port in recent years. The company has consistently earned 3.8% 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.

Our Take On Liaoning Port's ROCE

In summary, Liaoning Port has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Liaoning Port has the makings of a multi-bagger.

If you want to continue researching Liaoning Port, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Liaoning Port may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.