Jiangsu Longda Superalloy (SHSE:688231) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 looked at Jiangsu Longda Superalloy (SHSE:688231) and its trend of ROCE, we really liked what we saw.

What Is 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 Jiangsu Longda Superalloy is:

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

0.019 = CN¥55m ÷ (CN¥3.4b - CN¥445m) (Based on the trailing twelve months to December 2023).

Thus, Jiangsu Longda Superalloy has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.6%.

View our latest analysis for Jiangsu Longda Superalloy

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Jiangsu Longda Superalloy's past further, check out this free graph covering Jiangsu Longda Superalloy's past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Jiangsu Longda Superalloy is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 1.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Jiangsu Longda Superalloy is utilizing 767% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Jiangsu Longda Superalloy has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To the delight of most shareholders, Jiangsu Longda Superalloy has now broken into profitability. Given the stock has declined 51% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Jiangsu Longda Superalloy does have some risks though, and we've spotted 2 warning signs for Jiangsu Longda Superalloy that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.