Returns At Jiangsu Zhongtian Technology (SHSE:600522) Appear To Be Weighed Down

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 Jiangsu Zhongtian Technology (SHSE:600522), it didn't seem to tick all of these boxes.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Jiangsu Zhongtian Technology, this is the formula:

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

0.079 = CN¥2.9b ÷ (CN¥54b - CN¥17b) (Based on the trailing twelve months to March 2024).

Therefore, Jiangsu Zhongtian Technology has an ROCE of 7.9%. In absolute terms, that's a low return, but it's much better than the Electrical industry average of 6.0%.

Check out our latest analysis for Jiangsu Zhongtian Technology

In the above chart we have measured Jiangsu Zhongtian Technology'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 Zhongtian Technology for free.

What Can We Tell From Jiangsu Zhongtian Technology's ROCE Trend?

The returns on capital haven't changed much for Jiangsu Zhongtian Technology in recent years. The company has consistently earned 7.9% for the last five years, and the capital employed within the business has risen 47% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

Long story short, while Jiangsu Zhongtian Technology has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 62% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

While Jiangsu Zhongtian Technology doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 600522 on our platform.

While Jiangsu Zhongtian 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.