If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Jinzi HamLtd (SZSE:002515), it didn't seem to tick all of these boxes.
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. The formula for this calculation on Jinzi HamLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0053 = CN¥14m ÷ (CN¥2.8b - CN¥147m) (Based on the trailing twelve months to March 2024).
So, Jinzi HamLtd has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Food industry average of 7.6%.
See our latest analysis for Jinzi HamLtd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jinzi HamLtd's ROCE against it's prior returns. If you're interested in investigating Jinzi HamLtd's past further, check out this free graph covering Jinzi HamLtd's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
In terms of Jinzi HamLtd's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 0.5% and the business has deployed 91% more capital into its operations. 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.
What We Can Learn From Jinzi HamLtd's ROCE
In conclusion, Jinzi HamLtd has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 16% over the last five years, investors may not be too optimistic on this trend improving either. 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'd like to know about the risks facing Jinzi HamLtd, we've discovered 1 warning sign that you should be aware of.
While Jinzi HamLtd 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About SZSE:002515
Jinzi HamLtd
Engages in the research and development, production, and sale of fermented meat products in China and internationally.
Flawless balance sheet with proven track record.
