The Returns On Capital At Jiangsu New Technology GroupLtd (SZSE:301229) Don't Inspire Confidence

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Jiangsu New Technology GroupLtd (SZSE:301229) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 New Technology GroupLtd, this is the formula:

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

0.069 = CN¥89m ÷ (CN¥1.7b - CN¥380m) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu New Technology GroupLtd has an ROCE of 6.9%. Even though it's in line with the industry average of 7.4%, it's still a low return by itself.

View our latest analysis for Jiangsu New Technology GroupLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangsu New Technology GroupLtd's ROCE against it's prior returns. If you'd like to look at how Jiangsu New Technology GroupLtd has performed in the past in other metrics, you can view this free graph of Jiangsu New Technology GroupLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Jiangsu New Technology GroupLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 16% over the last three years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Jiangsu New Technology GroupLtd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu New Technology GroupLtd. However, total returns to shareholders over the last year have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Jiangsu New Technology GroupLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 301229 on our platform quite valuable.

While Jiangsu New Technology GroupLtd 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.