Shaanxi Jinye Science Technology and Education GroupLtd (SZSE:000812) Has Some Way To Go To Become A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Having said that, from a first glance at Shaanxi Jinye Science Technology and Education GroupLtd (SZSE:000812) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for Shaanxi Jinye Science Technology and Education GroupLtd:

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

0.061 = CN¥148m ÷ (CN¥4.4b - CN¥2.0b) (Based on the trailing twelve months to September 2023).

So, Shaanxi Jinye Science Technology and Education GroupLtd has an ROCE of 6.1%. Even though it's in line with the industry average of 5.5%, it's still a low return by itself.

See our latest analysis for Shaanxi Jinye Science Technology and Education GroupLtd

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're interested in investigating Shaanxi Jinye Science Technology and Education GroupLtd's past further, check out this free graph covering Shaanxi Jinye Science Technology and Education GroupLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Shaanxi Jinye Science Technology and Education GroupLtd. Over the past five years, ROCE has remained relatively flat at around 6.1% and the business has deployed 51% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 45% of total assets, this reported ROCE would probably be less than6.1% because total capital employed would be higher.The 6.1% ROCE could be even lower if current liabilities weren't 45% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

What We Can Learn From Shaanxi Jinye Science Technology and Education GroupLtd's ROCE

In conclusion, Shaanxi Jinye Science Technology and Education GroupLtd has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 22% 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 Shaanxi Jinye Science Technology and Education GroupLtd has the makings of a multi-bagger.

If you want to know some of the risks facing Shaanxi Jinye Science Technology and Education GroupLtd we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Shaanxi Jinye Science Technology and Education GroupLtd 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.