Why We Like The Returns At Jingjin Equipment (SHSE:603279)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Jingjin Equipment's (SHSE:603279) look very promising so lets take a look.

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 Jingjin Equipment, this is the formula:

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

0.29 = CN¥1.3b ÷ (CN¥8.2b - CN¥4.0b) (Based on the trailing twelve months to March 2024).

So, Jingjin Equipment has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 5.6% earned by companies in a similar industry.

See our latest analysis for Jingjin Equipment

In the above chart we have measured Jingjin Equipment's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Jingjin Equipment .

What Does the ROCE Trend For Jingjin Equipment Tell Us?

Jingjin Equipment is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 29%. The amount of capital employed has increased too, by 101%. So we're very much inspired by what we're seeing at Jingjin Equipment thanks to its ability to profitably reinvest capital.

On a side note, Jingjin Equipment's current liabilities are still rather high at 48% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Jingjin Equipment's ROCE

To sum it up, Jingjin Equipment has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 55% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Jingjin Equipment does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

Jingjin Equipment is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com