Here's What's Concerning About TianJin JinRong TianYu Precision Machinery's (SZSE:300988) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at TianJin JinRong TianYu Precision Machinery (SZSE:300988), it didn't seem to tick all of these boxes.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TianJin JinRong TianYu Precision Machinery, this is the formula:

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

0.10 = CN¥139m ÷ (CN¥2.2b - CN¥859m) (Based on the trailing twelve months to September 2024).

Therefore, TianJin JinRong TianYu Precision Machinery has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Auto Components industry.

Check out our latest analysis for TianJin JinRong TianYu Precision Machinery

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'd like to look at how TianJin JinRong TianYu Precision Machinery has performed in the past in other metrics, you can view this free graph of TianJin JinRong TianYu Precision Machinery's past earnings, revenue and cash flow.

What Can We Tell From TianJin JinRong TianYu Precision Machinery's ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 15% five years ago, while the business's capital employed increased by 213%. Usually this isn't ideal, but given TianJin JinRong TianYu Precision Machinery conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with TianJin JinRong TianYu Precision Machinery's earnings and if they change as a result from the capital raise.

The Bottom Line On TianJin JinRong TianYu Precision Machinery's ROCE

While returns have fallen for TianJin JinRong TianYu Precision Machinery in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 12% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you'd like to know about the risks facing TianJin JinRong TianYu Precision Machinery, we've discovered 2 warning signs that you should be aware of.

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.

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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.