The Returns On Capital At Jiangsu Jujie Microfiber Technology Group (SZSE:300819) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Jiangsu Jujie Microfiber Technology Group (SZSE:300819) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Jiangsu Jujie Microfiber Technology Group, this is the formula:

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

0.035 = CN¥30m ÷ (CN¥1.0b - CN¥151m) (Based on the trailing twelve months to September 2023).

Thus, Jiangsu Jujie Microfiber Technology Group has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Luxury industry average of 5.9%.

View our latest analysis for Jiangsu Jujie Microfiber Technology Group

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 Jiangsu Jujie Microfiber Technology Group's past further, check out this free graph covering Jiangsu Jujie Microfiber Technology Group's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Jiangsu Jujie Microfiber Technology Group's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 20%, but since then they've fallen to 3.5%. However it looks like Jiangsu Jujie Microfiber Technology Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Jiangsu Jujie Microfiber Technology Group's ROCE

In summary, Jiangsu Jujie Microfiber Technology Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 55% over the last three years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Jiangsu Jujie Microfiber Technology Group has the makings of a multi-bagger.

Jiangsu Jujie Microfiber Technology Group does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.