What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Zhejiang Jiemei Electronic And Technology (SZSE:002859), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Zhejiang Jiemei Electronic And Technology is:

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

0.029 = CN¥119m ÷ (CN¥4.8b - CN¥729m) (Based on the trailing twelve months to June 2023).

Therefore, Zhejiang Jiemei Electronic And Technology has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Packaging industry average of 4.9%.

View our latest analysis for Zhejiang Jiemei Electronic And Technology

In the above chart we have measured Zhejiang Jiemei Electronic And Technology'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 Zhejiang Jiemei Electronic And Technology.

What Can We Tell From Zhejiang Jiemei Electronic And Technology's ROCE Trend?

Unfortunately, the trend isn't great with ROCE falling from 17% five years ago, while capital employed has grown 174%. That being said, Zhejiang Jiemei Electronic And Technology raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Zhejiang Jiemei Electronic And Technology probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Zhejiang Jiemei Electronic And Technology have fallen, meanwhile the business is employing more capital than it was five years ago. Despite the concerning underlying trends, the stock has actually gained 40% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing, we've spotted 2 warning signs facing Zhejiang Jiemei Electronic And Technology that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.