Investors Could Be Concerned With Jinlei Technology's (SZSE:300443) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Although, when we looked at Jinlei Technology (SZSE:300443), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Jinlei Technology is:

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

0.051 = CN¥321m ÷ (CN¥7.0b - CN¥731m) (Based on the trailing twelve months to March 2024).

Thus, Jinlei Technology has an ROCE of 5.1%. In absolute terms, that's a low return but it's around the Electrical industry average of 6.0%.

View our latest analysis for Jinlei Technology

Above you can see how the current ROCE for Jinlei Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jinlei Technology .

So How Is Jinlei Technology's ROCE Trending?

We weren't thrilled with the trend because Jinlei Technology's ROCE has reduced by 38% over the last five years, while the business employed 259% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. Jinlei Technology probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

Our Take On Jinlei Technology's ROCE

To conclude, we've found that Jinlei Technology is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 33% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing to note, we've identified 2 warning signs with Jinlei Technology and understanding these should be part of your investment process.

While Jinlei 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.