Jiangsu Xinquan Automotive TrimLtd (SHSE:603179) Hasn't Managed To Accelerate Its Returns

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Jiangsu Xinquan Automotive TrimLtd's (SHSE:603179) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Jiangsu Xinquan Automotive TrimLtd:

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

0.14 = CN¥994m ÷ (CN¥14b - CN¥7.0b) (Based on the trailing twelve months to March 2024).

Thus, Jiangsu Xinquan Automotive TrimLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Auto Components industry.

View our latest analysis for Jiangsu Xinquan Automotive TrimLtd

In the above chart we have measured Jiangsu Xinquan Automotive TrimLtd'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 analyst report for Jiangsu Xinquan Automotive TrimLtd .

So How Is Jiangsu Xinquan Automotive TrimLtd's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 238% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Jiangsu Xinquan Automotive TrimLtd's current liabilities are still rather high at 50% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Jiangsu Xinquan Automotive TrimLtd's ROCE

In the end, Jiangsu Xinquan Automotive TrimLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 488% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to know some of the risks facing Jiangsu Xinquan Automotive TrimLtd we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Jiangsu Xinquan Automotive TrimLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.