Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952) Has Some Way To Go To Become A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd is:

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

0.073 = CN¥864m ÷ (CN¥15b - CN¥2.9b) (Based on the trailing twelve months to December 2023).

Thus, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has an ROCE of 7.3%. On its own, that's a low figure but it's around the 7.6% average generated by the Food industry.

See our latest analysis for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd

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'd like to look at how Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has performed in the past in other metrics, you can view this free graph of Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd Tell Us?

There are better returns on capital out there than what we're seeing at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd. Over the past five years, ROCE has remained relatively flat at around 7.3% and the business has deployed 107% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's ROCE

As we've seen above, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 44% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd does come with some risks, and we've found 2 warning signs that 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.