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There Are Reasons To Feel Uneasy About Jiangyin Haida Rubber And Plastic's (SZSE:300320) Returns On Capital

Simply Wall St ·  12/16/2022 08:35

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Jiangyin Haida Rubber And Plastic (SZSE:300320) 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. The formula for this calculation on Jiangyin Haida Rubber And Plastic is:

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

0.061 = CN¥132m ÷ (CN¥3.2b - CN¥1.0b) (Based on the trailing twelve months to September 2022).

Thus, Jiangyin Haida Rubber And Plastic has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.9%.

Check out our latest analysis for Jiangyin Haida Rubber And Plastic

roceSZSE:300320 Return on Capital Employed December 16th 2022

Above you can see how the current ROCE for Jiangyin Haida Rubber And Plastic compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jiangyin Haida Rubber And Plastic here for free.

What Does the ROCE Trend For Jiangyin Haida Rubber And Plastic Tell Us?

In terms of Jiangyin Haida Rubber And Plastic's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 18%, but since then they've fallen to 6.1%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that Jiangyin Haida Rubber And Plastic is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 2 warning signs for Jiangyin Haida Rubber And Plastic you'll probably want to know about.

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.

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