If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Zhongjie (Jiangsu) TechnologyLtd (SZSE:301072), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Zhongjie (Jiangsu) TechnologyLtd is:

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

0.012 = CN¥9.4m ÷ (CN¥1.0b - CN¥258m) (Based on the trailing twelve months to September 2022).

Therefore, Zhongjie (Jiangsu) TechnologyLtd has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 5.0%.

See our latest analysis for Zhongjie (Jiangsu) TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zhongjie (Jiangsu) TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Zhongjie (Jiangsu) TechnologyLtd's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Zhongjie (Jiangsu) TechnologyLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last four years. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Zhongjie (Jiangsu) TechnologyLtd's ROCE

In summary, Zhongjie (Jiangsu) TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 14% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Zhongjie (Jiangsu) TechnologyLtd does have some risks, we noticed 4 warning signs (and 1 which is concerning) we think you should know about.

While Zhongjie (Jiangsu) TechnologyLtd 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.