If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Chemring Group (LON:CHG) so let's look a bit deeper.

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Return On Capital Employed (ROCE): What Is It?

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 Chemring Group, this is the formula:

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

0.13 = UK£62m ÷ (UK£692m - UK£222m) (Based on the trailing twelve months to October 2024).

So, Chemring Group has an ROCE of 13%.  In absolute terms, that's a pretty normal return, and it's somewhat close to the Aerospace & Defense industry average of 16%.

View our latest analysis for Chemring Group LSE:CHG Return on Capital Employed April 14th 2025

In the above chart we have measured Chemring Group'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 Chemring Group .

The Trend Of ROCE

Investors would be pleased with what's happening at Chemring Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 35% more capital is being employed now too. So we're very much inspired by what we're seeing at Chemring Group thanks to its ability to profitably reinvest capital.

Our Take On Chemring Group's ROCE

All in all, it's terrific to see that Chemring Group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 109% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Story Continues

While Chemring Group looks impressive, no company is worth an infinite price. The  intrinsic value infographic for CHG helps visualize whether it is currently trading for a fair price.

While Chemring Group isn't earning the highest return, check out this freelist 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.

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