Jinhong Fashion GroupLtd (SHSE:603518) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after briefly looking over the numbers, we don't think Jinhong Fashion GroupLtd (SHSE:603518) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for Jinhong Fashion GroupLtd:

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

0.11 = CN¥446m ÷ (CN¥5.4b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

Therefore, Jinhong Fashion GroupLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.1% generated by the Luxury industry.

Check out our latest analysis for Jinhong Fashion GroupLtd

In the above chart we have measured Jinhong Fashion GroupLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Jinhong Fashion GroupLtd .

What Can We Tell From Jinhong Fashion GroupLtd's ROCE Trend?

There hasn't been much to report for Jinhong Fashion GroupLtd's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Jinhong Fashion GroupLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Jinhong Fashion GroupLtd's ROCE

In a nutshell, Jinhong Fashion GroupLtd has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 0.006% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 1 warning sign facing Jinhong Fashion GroupLtd that you might find interesting.

While Jinhong Fashion 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.