What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at ANTA Sports Products (HKG:2020), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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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 ANTA Sports Products, this is the formula:

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

0.20 = CN¥17b ÷ (CN¥113b - CN¥29b) (Based on the trailing twelve months to December 2024).

So, ANTA Sports Products has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Luxury industry average of 12%.

View our latest analysis for ANTA Sports Products

In the above chart we have measured ANTA Sports Products' 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 ANTA Sports Products .

What Does the ROCE Trend For ANTA Sports Products Tell Us?

When we looked at the ROCE trend at ANTA Sports Products, we didn't gain much confidence. While it's comforting that the ROCE is high, five years ago it was 30%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On ANTA Sports Products' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that ANTA Sports Products is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 37% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One more thing to note, we've identified 2 warning signs with ANTA Sports Products and understanding them should be part of your investment process.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.