Investors Will Want Nantong Jianghai Capacitor's (SZSE:002484) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. With that in mind, we've noticed some promising trends at Nantong Jianghai Capacitor (SZSE:002484) so let's look a bit deeper.

Understanding 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. To calculate this metric for Nantong Jianghai Capacitor, this is the formula:

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

0.12 = CN¥699m ÷ (CN¥7.4b - CN¥1.4b) (Based on the trailing twelve months to September 2024).

Thus, Nantong Jianghai Capacitor has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 5.9% it's much better.

See our latest analysis for Nantong Jianghai Capacitor

In the above chart we have measured Nantong Jianghai Capacitor'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 Nantong Jianghai Capacitor .

The Trend Of ROCE

Nantong Jianghai Capacitor is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 64%. So we're very much inspired by what we're seeing at Nantong Jianghai Capacitor thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Nantong Jianghai Capacitor can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

Nantong Jianghai Capacitor does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Nantong Jianghai Capacitor 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.