Nantong Jianghai Capacitor (SZSE:002484) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Nantong Jianghai Capacitor (SZSE:002484) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Nantong Jianghai Capacitor:

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

0.14 = CN¥770m ÷ (CN¥7.1b - CN¥1.5b) (Based on the trailing twelve months to September 2023).

Thus, Nantong Jianghai Capacitor has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Electrical industry.

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

Investors would be pleased with what's happening at Nantong Jianghai Capacitor. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 67%. So we're very much inspired by what we're seeing at Nantong Jianghai Capacitor thanks to its ability to profitably reinvest capital.

The Bottom Line

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. In light of that, we think it's worth looking further into this stock because if Nantong Jianghai Capacitor can keep these trends up, it could have a bright future ahead.

Like most companies, Nantong Jianghai Capacitor does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.