Investors Will Want Jiangsu Maysta Chemical's (SHSE:603041) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Jiangsu Maysta Chemical (SHSE:603041) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jiangsu Maysta Chemical, this is the formula:

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

0.077 = CN¥115m ÷ (CN¥1.8b - CN¥274m) (Based on the trailing twelve months to March 2024).

Therefore, Jiangsu Maysta Chemical has an ROCE of 7.7%. On its own that's a low return, but compared to the average of 5.5% generated by the Chemicals industry, it's much better.

Check out our latest analysis for Jiangsu Maysta Chemical

Above you can see how the current ROCE for Jiangsu Maysta Chemical compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jiangsu Maysta Chemical for free.

What Does the ROCE Trend For Jiangsu Maysta Chemical Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 97% more capital is being employed now too. So we're very much inspired by what we're seeing at Jiangsu Maysta Chemical thanks to its ability to profitably reinvest capital.

What We Can Learn From Jiangsu Maysta Chemical's ROCE

To sum it up, Jiangsu Maysta Chemical has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 2 warning signs we've spotted with Jiangsu Maysta Chemical (including 1 which doesn't sit too well with us) .

While Jiangsu Maysta Chemical 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.