Investors Met With Slowing Returns on Capital At Shanghai Jahwa United (SHSE:600315)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Shanghai Jahwa United (SHSE:600315) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Shanghai Jahwa United:

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

0.058 = CN¥499m ÷ (CN¥12b - CN¥3.2b) (Based on the trailing twelve months to March 2024).

Therefore, Shanghai Jahwa United has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 9.7%.

View our latest analysis for Shanghai Jahwa United

In the above chart we have measured Shanghai Jahwa United's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai Jahwa United .

The Trend Of ROCE

Over the past five years, Shanghai Jahwa United's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Shanghai Jahwa United doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Shanghai Jahwa United has been paying out a decent 30% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

Our Take On Shanghai Jahwa United's ROCE

We can conclude that in regards to Shanghai Jahwa United's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 39% 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 Shanghai Jahwa United has the makings of a multi-bagger.

If you'd like to know about the risks facing Shanghai Jahwa United, we've discovered 1 warning sign that you should be aware of.

While Shanghai Jahwa United 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