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She watched the children heading back to school.
Literal
She [topic-は] children [subject-が] school [to-へ] return-going [nominalizer-の] [object-を] watched.
The compound auxiliary ~ていく ('go away from speaker') stitches onto 戻る ('return') for 戻っていく — 'go back, head back away from where I am.' The image is of the speaker watching the children's return motion proceeding away. Pairs with the perception construction ~のを見る for 'watched [the receding return].' This combination of perception + directional motion verb is wonderfully visual: the listener almost sees the camera angle from the watcher's position.