Returns Are Gaining Momentum At Zhejiang Jinggong Integration Technology (SZSE:002006)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Zhejiang Jinggong Integration Technology (SZSE:002006) and its trend of ROCE, we really liked what we saw.

What Is 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 Zhejiang Jinggong Integration Technology:

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

0.055 = CN¥74m ÷ (CN¥2.9b - CN¥1.5b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang Jinggong Integration Technology has an ROCE of 5.5%. Even though it's in line with the industry average of 5.2%, it's still a low return by itself.

View our latest analysis for Zhejiang Jinggong Integration Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zhejiang Jinggong Integration Technology's ROCE against it's prior returns. If you're interested in investigating Zhejiang Jinggong Integration Technology's past further, check out this free graph covering Zhejiang Jinggong Integration Technology's past earnings, revenue and cash flow.

How Are Returns Trending?

Zhejiang Jinggong Integration Technology has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.5% which is a sight for sore eyes. Not only that, but the company is utilizing 39% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, Zhejiang Jinggong Integration Technology's current liabilities are still rather high at 53% 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

Long story short, we're delighted to see that Zhejiang Jinggong Integration Technology's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 217% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Zhejiang Jinggong Integration Technology can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Zhejiang Jinggong Integration Technology we've found 4 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Zhejiang Jinggong Integration 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.