Some Investors May Be Worried About Beijing Jiaman DressLtd's (SZSE:301276) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Beijing Jiaman DressLtd (SZSE:301276) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. The formula for this calculation on Beijing Jiaman DressLtd is:

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

0.11 = CN¥226m ÷ (CN¥2.5b - CN¥368m) (Based on the trailing twelve months to March 2024).

Therefore, Beijing Jiaman DressLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Luxury industry.

View our latest analysis for Beijing Jiaman DressLtd

Above you can see how the current ROCE for Beijing Jiaman DressLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Beijing Jiaman DressLtd for free.

The Trend Of ROCE

In terms of Beijing Jiaman DressLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. However it looks like Beijing Jiaman DressLtd 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Beijing Jiaman DressLtd has done well to pay down its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Beijing Jiaman DressLtd's ROCE

To conclude, we've found that Beijing Jiaman DressLtd is reinvesting in the business, but returns have been falling. And in the last year, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Beijing Jiaman DressLtd has the makings of a multi-bagger.

If you'd like to know more about Beijing Jiaman DressLtd, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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.