Jiangsu Guomao Reducer (SHSE:603915) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. 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 Guomao Reducer (SHSE:603915), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Jiangsu Guomao Reducer:

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

0.089 = CN¥333m ÷ (CN¥5.2b - CN¥1.5b) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Guomao Reducer has an ROCE of 8.9%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.2%.

See our latest analysis for Jiangsu Guomao Reducer

Above you can see how the current ROCE for Jiangsu Guomao Reducer 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 Guomao Reducer .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Jiangsu Guomao Reducer doesn't inspire confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 8.9%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Jiangsu Guomao Reducer's ROCE

In summary, Jiangsu Guomao Reducer is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 31% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

While Jiangsu Guomao Reducer 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 603915 on our platform.

While Jiangsu Guomao Reducer 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.