Jiangsu Zhongtian Technology (SHSE:600522) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Jiangsu Zhongtian Technology (SHSE:600522) and its ROCE trend, we weren't exactly thrilled.

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 Zhongtian Technology:

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

0.093 = CN¥3.4b ÷ (CN¥54b - CN¥18b) (Based on the trailing twelve months to September 2023).

Therefore, Jiangsu Zhongtian Technology has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 6.4% generated by the Electrical industry, it's much better.

See our latest analysis for Jiangsu Zhongtian Technology

Above you can see how the current ROCE for Jiangsu Zhongtian Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu Zhongtian Technology .

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Jiangsu Zhongtian Technology. The company has employed 84% more capital in the last five years, and the returns on that capital have remained stable at 9.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Jiangsu Zhongtian Technology's ROCE

Long story short, while Jiangsu Zhongtian Technology has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 55% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you're still interested in Jiangsu Zhongtian Technology it's worth checking out our FREE intrinsic value approximation for 600522 to see if it's trading at an attractive price in other respects.

While Jiangsu Zhongtian Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.