To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after briefly looking over the numbers, we don't think Jiangsu JieJie Microelectronics (SZSE:300623) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 Jiangsu JieJie Microelectronics:

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

0.039 = CN¥248m ÷ (CN¥7.7b - CN¥1.3b) (Based on the trailing twelve months to March 2024).

Thus, Jiangsu JieJie Microelectronics has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.0%.

Above you can see how the current ROCE for Jiangsu JieJie Microelectronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu JieJie Microelectronics .

What Can We Tell From Jiangsu JieJie Microelectronics' ROCE Trend?

We weren't thrilled with the trend because Jiangsu JieJie Microelectronics' ROCE has reduced by 66% over the last five years, while the business employed 371% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Jiangsu JieJie Microelectronics' earnings and if they change as a result from the capital raise. It's also worth noting the company's latest EBIT figure is within 10% of the previous year, so it's fair to assign the ROCE drop largely to the capital raise.

What We Can Learn From Jiangsu JieJie Microelectronics' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu JieJie Microelectronics. And long term investors must be optimistic going forward because the stock has returned a huge 101% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Jiangsu JieJie Microelectronics, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.