If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is:

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

0.075 = CN¥891m ÷ (CN¥14b - CN¥2.4b) (Based on the trailing twelve months to June 2023).

So, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has an ROCE of 7.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.9%.

See our latest analysis for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd

In the above chart we have measured Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd'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 The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 7.5% and the business has deployed 112% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

As we've seen above, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 99% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd, we've discovered 2 warning signs that you should be aware of.

While Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd 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.