There are a few key trends to look for if we want to identify the next multi-bagger. 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 MicroelectronicsLtd (SZSE:300623) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jiangsu JieJie MicroelectronicsLtd:

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

0.094 = CN¥517m ÷ (CN¥6.2b - CN¥648m) (Based on the trailing twelve months to March 2022).

So, Jiangsu JieJie MicroelectronicsLtd has an ROCE of 9.4%. Even though it's in line with the industry average of 8.7%, it's still a low return by itself.

View our latest analysis for Jiangsu JieJie MicroelectronicsLtd

In the above chart we have measured Jiangsu JieJie MicroelectronicsLtd'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 report on analyst forecasts for the company.

What Can We Tell From Jiangsu JieJie MicroelectronicsLtd's ROCE Trend?

In terms of Jiangsu JieJie MicroelectronicsLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 9.4%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Jiangsu JieJie MicroelectronicsLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Jiangsu JieJie MicroelectronicsLtd is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 142% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Jiangsu JieJie MicroelectronicsLtd does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

While Jiangsu JieJie MicroelectronicsLtd 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.