Jiangsu Tongda Power TechnologyLtd (SZSE:002576) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Jiangsu Tongda Power TechnologyLtd (SZSE:002576) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Jiangsu Tongda Power TechnologyLtd is:

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

0.035 = CN¥44m ÷ (CN¥2.0b - CN¥742m) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Tongda Power TechnologyLtd has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Electrical industry average of 5.8%.

View our latest analysis for Jiangsu Tongda Power TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangsu Tongda Power TechnologyLtd'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 Tongda Power TechnologyLtd.

So How Is Jiangsu Tongda Power TechnologyLtd's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.5%. The amount of capital employed has increased too, by 40%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Jiangsu Tongda Power TechnologyLtd's ROCE

To sum it up, Jiangsu Tongda Power TechnologyLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 74% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with Jiangsu Tongda Power TechnologyLtd and understanding them should be part of your investment process.

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.