Investors Could Be Concerned With Jiangsu Zhongchao Holding's (SZSE:002471) Returns On Capital

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at Jiangsu Zhongchao Holding (SZSE:002471), so let's see why.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Jiangsu Zhongchao Holding:

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

0.044 = CN¥78m ÷ (CN¥5.3b - CN¥3.5b) (Based on the trailing twelve months to March 2024).

So, Jiangsu Zhongchao Holding has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Electrical industry average of 6.0%.

See our latest analysis for Jiangsu Zhongchao Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangsu Zhongchao Holding's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangsu Zhongchao Holding.

What Does the ROCE Trend For Jiangsu Zhongchao Holding Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 12% five years ago and the business is utilizing 31% less capital, even after their capital raise (conducted prior to the latest reporting period).

On a side note, Jiangsu Zhongchao Holding's current liabilities are still rather high at 66% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Jiangsu Zhongchao Holding's ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Long term shareholders who've owned the stock over the last five years have experienced a 19% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Jiangsu Zhongchao Holding, we've spotted 4 warning signs, and 1 of them is a bit concerning.

While Jiangsu Zhongchao Holding 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.

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