Zhejiang Zhongjian TechnologyLtd's (SZSE:002779) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Zhejiang Zhongjian TechnologyLtd's (SZSE:002779) returns on capital, so let's have a look.

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 Zhejiang Zhongjian TechnologyLtd, this is the formula:

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

0.035 = CN¥26m ÷ (CN¥1.1b - CN¥334m) (Based on the trailing twelve months to September 2024).

Therefore, Zhejiang Zhongjian TechnologyLtd has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.6%.

See our latest analysis for Zhejiang Zhongjian TechnologyLtd

Above you can see how the current ROCE for Zhejiang Zhongjian TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zhejiang Zhongjian TechnologyLtd .

What Does the ROCE Trend For Zhejiang Zhongjian TechnologyLtd Tell Us?

Shareholders will be relieved that Zhejiang Zhongjian TechnologyLtd has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 3.5% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

As discussed above, Zhejiang Zhongjian TechnologyLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 624% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Zhejiang Zhongjian TechnologyLtd can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Zhejiang Zhongjian TechnologyLtd (1 makes us a bit uncomfortable) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.