Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952) Hasn't Managed To Accelerate Its Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd:

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

0.084 = CN¥1.0b ÷ (CN¥14b - CN¥2.2b) (Based on the trailing twelve months to June 2024).

Therefore, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has an ROCE of 8.4%. Even though it's in line with the industry average of 7.6%, it's still a low return by itself.

See our latest analysis for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd

In the above chart we have measured Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd .

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd. The company has employed 93% more capital in the last five years, and the returns on that capital have remained stable at 8.4%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 61% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd, we've discovered 1 warning sign that you should be aware of.

While Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.