If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Jiangsu JieJie MicroelectronicsLtd (SZSE:300623) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Jiangsu JieJie MicroelectronicsLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = CN¥456m ÷ (CN¥6.6b - CN¥767m) (Based on the trailing twelve months to June 2022).
So, Jiangsu JieJie MicroelectronicsLtd has an ROCE of 7.9%. Even though it's in line with the industry average of 7.8%, it's still a low return by itself.
See our latest analysis for Jiangsu JieJie MicroelectronicsLtd
SZSE:300623 Return on Capital Employed September 30th 2022In 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'd like to see what analysts are forecasting going forward, you should check out our free report for Jiangsu JieJie MicroelectronicsLtd.
What Does the ROCE Trend For Jiangsu JieJie MicroelectronicsLtd Tell Us?
On the surface, the trend of ROCE at Jiangsu JieJie MicroelectronicsLtd doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 7.9%. 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. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line
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 MicroelectronicsLtd. And the stock has followed suit returning a meaningful 61% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.
On a final note, we found 2 warning signs for Jiangsu JieJie MicroelectronicsLtd (1 is concerning) 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.