Jiangsu Yunyi ElectricLtd (SZSE:300304) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Jiangsu Yunyi ElectricLtd (SZSE:300304) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Jiangsu Yunyi ElectricLtd, this is the formula:

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

0.14 = CN¥430m ÷ (CN¥3.9b - CN¥770m) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Yunyi ElectricLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.0% it's much better.

See our latest analysis for Jiangsu Yunyi ElectricLtd

In the above chart we have measured Jiangsu Yunyi ElectricLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jiangsu Yunyi ElectricLtd for free.

What Does the ROCE Trend For Jiangsu Yunyi ElectricLtd Tell Us?

The trends we've noticed at Jiangsu Yunyi ElectricLtd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 54%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Jiangsu Yunyi ElectricLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 84% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Jiangsu Yunyi ElectricLtd can keep these trends up, it could have a bright future ahead.

While Jiangsu Yunyi ElectricLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 300304 helps visualize whether it is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.