Jiangsu Pacific Precision Forging (SZSE:300258) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Jiangsu Pacific Precision Forging (SZSE:300258) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Pacific Precision Forging is:

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

0.04 = CN¥208m ÷ (CN¥6.7b - CN¥1.5b) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Pacific Precision Forging has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 7.0%.

Check out our latest analysis for Jiangsu Pacific Precision Forging

In the above chart we have measured Jiangsu Pacific Precision Forging'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 Pacific Precision Forging .

What Can We Tell From Jiangsu Pacific Precision Forging's ROCE Trend?

On the surface, the trend of ROCE at Jiangsu Pacific Precision Forging doesn't inspire confidence. Around five years ago the returns on capital were 12%, but since then they've fallen to 4.0%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Jiangsu Pacific Precision Forging's ROCE

To conclude, we've found that Jiangsu Pacific Precision Forging is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing to note, we've identified 2 warning signs with Jiangsu Pacific Precision Forging and understanding these 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.