The Return Trends At Jiangxi Xinyu Guoke Technology (SZSE:300722) Look Promising

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Jiangxi Xinyu Guoke Technology's (SZSE:300722) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Jiangxi Xinyu Guoke Technology is:

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

0.13 = CN¥86m ÷ (CN¥840m - CN¥191m) (Based on the trailing twelve months to September 2024).

Therefore, Jiangxi Xinyu Guoke Technology has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.4% generated by the Aerospace & Defense industry.

View our latest analysis for Jiangxi Xinyu Guoke Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangxi Xinyu Guoke Technology's ROCE against it's prior returns. If you'd like to look at how Jiangxi Xinyu Guoke Technology has performed in the past in other metrics, you can view this free graph of Jiangxi Xinyu Guoke Technology's past earnings, revenue and cash flow.

The Trend Of ROCE

Investors would be pleased with what's happening at Jiangxi Xinyu Guoke Technology. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 42% more capital is being employed now too. So we're very much inspired by what we're seeing at Jiangxi Xinyu Guoke Technology thanks to its ability to profitably reinvest capital.

The Bottom Line On Jiangxi Xinyu Guoke Technology's ROCE

All in all, it's terrific to see that Jiangxi Xinyu Guoke Technology is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 273% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Jiangxi Xinyu Guoke Technology can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Jiangxi Xinyu Guoke Technology that we think 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.