The Returns On Capital At Hainan Jingliang Holdings (SZSE:000505) Don't Inspire Confidence

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating Hainan Jingliang Holdings (SZSE:000505), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Hainan Jingliang Holdings, this is the formula:

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

0.0027 = CN¥12m ÷ (CN¥7.0b - CN¥2.6b) (Based on the trailing twelve months to March 2024).

Therefore, Hainan Jingliang Holdings has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.6%.

See our latest analysis for Hainan Jingliang Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hainan Jingliang Holdings' ROCE against it's prior returns. If you're interested in investigating Hainan Jingliang Holdings' past further, check out this free graph covering Hainan Jingliang Holdings' past earnings, revenue and cash flow.

What Can We Tell From Hainan Jingliang Holdings' ROCE Trend?

In terms of Hainan Jingliang Holdings' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 8.0%, but since then they've fallen to 0.3%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

Our Take On Hainan Jingliang Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Hainan Jingliang Holdings' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 22% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Hainan Jingliang Holdings we've found 4 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Hainan Jingliang Holdings 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.