Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952), it didn't seem to tick all of these boxes.
What Is 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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.076 = CN¥901m ÷ (CN¥15b - CN¥2.9b) (Based on the trailing twelve months to September 2023).
Thus, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has an ROCE of 7.6%. Even though it's in line with the industry average of 7.5%, it's still a low return by itself.
View 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'd like to see what analysts are forecasting going forward, you should check out our free report for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd.
The Trend Of ROCE
There are better returns on capital out there than what we're seeing at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd. The company has employed 107% more capital in the last five years, and the returns on that capital have remained stable at 7.6%. 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 Key Takeaway
In conclusion, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 70% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
One more thing to note, we've identified 1 warning sign with Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd and understanding this should be part of your investment process.
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.