To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Jinneng Science&TechologyLtd (SHSE:603113) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for Jinneng Science&TechologyLtd:

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

0.064 = CN¥639m ÷ (CN¥14b - CN¥4.5b) (Based on the trailing twelve months to March 2022).

Therefore, Jinneng Science&TechologyLtd has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 9.5%.

Check out our latest analysis for Jinneng Science&TechologyLtd

In the above chart we have measured Jinneng Science&TechologyLtd'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 report for Jinneng Science&TechologyLtd.

What Does the ROCE Trend For Jinneng Science&TechologyLtd Tell Us?

When we looked at the ROCE trend at Jinneng Science&TechologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 28%, but since then they've fallen to 6.4%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

While returns have fallen for Jinneng Science&TechologyLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 53% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Jinneng Science&TechologyLtd does have some risks though, and we've spotted 2 warning signs for Jinneng Science&TechologyLtd that you might be interested in.

While Jinneng Science&TechologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.