There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Omni-Lite Industries Canada (CVE:OML) so let's look a bit deeper.

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 Omni-Lite Industries Canada, this is the formula:

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

0.11 = US$2.3m ÷ (US$23m - US$2.0m) (Based on the trailing twelve months to June 2024).

Thus, Omni-Lite Industries Canada has an ROCE of 11%. In isolation, that's a pretty standard return but against the Machinery industry average of 14%, it's not as good.

See our latest analysis for Omni-Lite Industries Canada

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Omni-Lite Industries Canada has performed in the past in other metrics, you can view this free graph of Omni-Lite Industries Canada's past earnings, revenue and cash flow.

How Are Returns Trending?

We like the trends that we're seeing from Omni-Lite Industries Canada. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 23%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Omni-Lite Industries Canada's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Omni-Lite Industries Canada has. And with a respectable 64% 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.