Yangzhou Jinquan Travelling Goods (SHSE:603307) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Yangzhou Jinquan Travelling Goods' (SHSE:603307) trend of ROCE, we liked what we saw.

What Is 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 Yangzhou Jinquan Travelling Goods is:

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

0.16 = CN¥227m ÷ (CN¥1.7b - CN¥301m) (Based on the trailing twelve months to September 2023).

Therefore, Yangzhou Jinquan Travelling Goods has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Leisure industry average of 6.4% it's much better.

See our latest analysis for Yangzhou Jinquan Travelling Goods

Above you can see how the current ROCE for Yangzhou Jinquan Travelling Goods 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 Yangzhou Jinquan Travelling Goods .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 281% more capital in the last four years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Yangzhou Jinquan Travelling Goods' ROCE

The main thing to remember is that Yangzhou Jinquan Travelling Goods has proven its ability to continually reinvest at respectable rates of return. Yet over the last year the stock has declined 25%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know about the risks facing Yangzhou Jinquan Travelling Goods, we've discovered 1 warning sign that 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.