Jiangnan Yifan MotorLtd (SZSE:301023) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. In light of that, when we looked at Jiangnan Yifan MotorLtd (SZSE:301023) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Jiangnan Yifan MotorLtd, this is the formula:

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

0.056 = CN¥46m ÷ (CN¥882m - CN¥59m) (Based on the trailing twelve months to March 2024).

Therefore, Jiangnan Yifan MotorLtd has an ROCE of 5.6%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

View our latest analysis for Jiangnan Yifan MotorLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangnan Yifan MotorLtd's ROCE against it's prior returns. If you're interested in investigating Jiangnan Yifan MotorLtd's past further, check out this free graph covering Jiangnan Yifan MotorLtd's past earnings, revenue and cash flow.

So How Is Jiangnan Yifan MotorLtd's ROCE Trending?

When we looked at the ROCE trend at Jiangnan Yifan MotorLtd, we didn't gain much confidence. Around five years ago the returns on capital were 35%, but since then they've fallen to 5.6%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Jiangnan Yifan MotorLtd has done well to pay down its current liabilities to 6.7% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

In summary, Jiangnan Yifan MotorLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 24% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Jiangnan Yifan MotorLtd has the makings of a multi-bagger.

If you'd like to know more about Jiangnan Yifan MotorLtd, we've spotted 4 warning signs, and 2 of them are potentially serious.

While Jiangnan Yifan MotorLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.