Slowing Rates Of Return At Jiang Su Suyan JingshenLtd (SHSE:603299) Leave Little Room For Excitement

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Jiang Su Suyan JingshenLtd's (SHSE:603299) trend of ROCE, we liked what we saw.

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 Jiang Su Suyan JingshenLtd is:

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

0.12 = CN¥882m ÷ (CN¥11b - CN¥3.2b) (Based on the trailing twelve months to March 2024).

So, Jiang Su Suyan JingshenLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.7% generated by the Chemicals industry.

Check out our latest analysis for Jiang Su Suyan JingshenLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiang Su Suyan JingshenLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiang Su Suyan JingshenLtd.

What Can We Tell From Jiang Su Suyan JingshenLtd's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 84% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Jiang Su Suyan JingshenLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Jiang Su Suyan JingshenLtd has done well to reduce current liabilities to 30% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

The main thing to remember is that Jiang Su Suyan JingshenLtd has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 42% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 1 warning sign for Jiang Su Suyan JingshenLtd that we think you should be aware of.

While Jiang Su Suyan JingshenLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.