Returns On Capital At Jiangsu Boqian New Materials Stock (SHSE:605376) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. In light of that, when we looked at Jiangsu Boqian New Materials Stock (SHSE:605376) and its ROCE trend, we weren't exactly thrilled.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Jiangsu Boqian New Materials Stock:

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

0.019 = CN¥30m ÷ (CN¥1.8b - CN¥211m) (Based on the trailing twelve months to September 2024).

Therefore, Jiangsu Boqian New Materials Stock has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.8%.

See our latest analysis for Jiangsu Boqian New Materials Stock

Above you can see how the current ROCE for Jiangsu Boqian New Materials Stock 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 Boqian New Materials Stock for free.

What The Trend Of ROCE Can Tell Us

In terms of Jiangsu Boqian New Materials Stock's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 29% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu Boqian New Materials Stock. However, despite the promising trends, the stock has fallen 63% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Jiangsu Boqian New Materials Stock, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Jiangsu Boqian New Materials Stock may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.