To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Jinko Solar (SHSE:688223) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Jinko Solar is:

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

0.12 = CN¥7.4b ÷ (CN¥131b - CN¥70b) (Based on the trailing twelve months to March 2024).

Thus, Jinko Solar has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 4.0% it's much better.

In the above chart we have measured Jinko Solar's 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 Jinko Solar .

What Does the ROCE Trend For Jinko Solar Tell Us?

We like the trends that we're seeing from Jinko Solar. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 445%. So we're very much inspired by what we're seeing at Jinko Solar thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 53%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Jinko Solar has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Jinko Solar's ROCE

In summary, it's great to see that Jinko Solar can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 42% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Jinko Solar you'll probably want to know about.

While Jinko Solar isn't earning the highest return, check out this free list 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.