Jason Furniture (Hangzhou)Ltd (SHSE:603816) Is Achieving High Returns On Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Jason Furniture (Hangzhou)Ltd (SHSE:603816) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Jason Furniture (Hangzhou)Ltd is:

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

0.22 = CN¥2.2b ÷ (CN¥16b - CN¥5.6b) (Based on the trailing twelve months to June 2024).

So, Jason Furniture (Hangzhou)Ltd has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.

Check out our latest analysis for Jason Furniture (Hangzhou)Ltd

In the above chart we have measured Jason Furniture (Hangzhou)Ltd'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 Jason Furniture (Hangzhou)Ltd .

What Can We Tell From Jason Furniture (Hangzhou)Ltd's ROCE Trend?

Investors would be pleased with what's happening at Jason Furniture (Hangzhou)Ltd. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 39%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Jason Furniture (Hangzhou)Ltd's ROCE

All in all, it's terrific to see that Jason Furniture (Hangzhou)Ltd is reaping the rewards from prior investments and is growing its capital base. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 2 warning signs for Jason Furniture (Hangzhou)Ltd (1 doesn't sit too well with us) you should be aware of.

Jason Furniture (Hangzhou)Ltd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.