The Returns At Jiangsu Bojun Industrial Technology (SZSE:300926) Aren't Growing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Jiangsu Bojun Industrial Technology's (SZSE:300926) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Jiangsu Bojun Industrial Technology:

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

0.15 = CN¥332m ÷ (CN¥4.9b - CN¥2.6b) (Based on the trailing twelve months to September 2023).

So, Jiangsu Bojun Industrial Technology has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 5.8% it's much better.

See our latest analysis for Jiangsu Bojun Industrial Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangsu Bojun Industrial Technology.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 419% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Jiangsu Bojun Industrial Technology has consistently earned this amount. 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 Bojun Industrial Technology's current liabilities are still rather high at 54% 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Jiangsu Bojun Industrial Technology's ROCE

The main thing to remember is that Jiangsu Bojun Industrial Technology has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 131% return over the last three years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know more about Jiangsu Bojun Industrial Technology, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

While Jiangsu Bojun Industrial 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.