There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Jiangsu Asia-Pacific Light Alloy Technology (SZSE:002540) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jiangsu Asia-Pacific Light Alloy Technology:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.076 = CN¥506m ÷ (CN¥7.4b - CN¥732m) (Based on the trailing twelve months to September 2023).
So, Jiangsu Asia-Pacific Light Alloy Technology has an ROCE of 7.6%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 6.3%.
Above you can see how the current ROCE for Jiangsu Asia-Pacific Light Alloy Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu Asia-Pacific Light Alloy Technology .
What Can We Tell From Jiangsu Asia-Pacific Light Alloy Technology's ROCE Trend?
In terms of Jiangsu Asia-Pacific Light Alloy Technology's historical ROCE trend, it doesn't exactly demand attention. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 7.6%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Jiangsu Asia-Pacific Light Alloy Technology's ROCE
As we've seen above, Jiangsu Asia-Pacific Light Alloy Technology's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 13% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
If you want to continue researching Jiangsu Asia-Pacific Light Alloy Technology, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Jiangsu Asia-Pacific Light Alloy Technology 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.