Jiangyin Electrical AlloyLtd (SZSE:300697) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Jiangyin Electrical AlloyLtd's (SZSE:300697) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Jiangyin Electrical AlloyLtd, this is the formula:

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

0.17 = CN¥173m ÷ (CN¥1.6b - CN¥613m) (Based on the trailing twelve months to September 2023).

Therefore, Jiangyin Electrical AlloyLtd has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.3% it's much better.

See our latest analysis for Jiangyin Electrical AlloyLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangyin Electrical AlloyLtd.

So How Is Jiangyin Electrical AlloyLtd's ROCE Trending?

Investors would be pleased with what's happening at Jiangyin Electrical AlloyLtd. The data shows that returns on capital have increased substantially over the last five years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. 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.

Our Take On Jiangyin Electrical AlloyLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jiangyin Electrical AlloyLtd has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 35% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 1 warning sign for Jiangyin Electrical AlloyLtd you'll probably want to know about.

While Jiangyin Electrical AlloyLtd 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.