If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Jiang Su Suyan JingshenLtd's (SHSE:603299) trend of ROCE, we liked what we saw.
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. To calculate this metric for Jiang Su Suyan JingshenLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = CN¥976m ÷ (CN¥10b - CN¥3.8b) (Based on the trailing twelve months to September 2022).
So, Jiang Su Suyan JingshenLtd has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Chemicals industry.
View our latest analysis for Jiang Su Suyan JingshenLtd
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Jiang Su Suyan JingshenLtd, check out these free graphs here.
What Can We Tell From Jiang Su Suyan JingshenLtd's ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 177% in that time. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
What We Can Learn From Jiang Su Suyan JingshenLtd's ROCE
The main thing to remember is that Jiang Su Suyan JingshenLtd has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 8.9% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.
Jiang Su Suyan JingshenLtd does have some risks though, and we've spotted 1 warning sign for Jiang Su Suyan JingshenLtd that you might be interested in.
While Jiang Su Suyan JingshenLtd 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.