Jiangsu Feymer Technology (SHSE:688350) Might Be Having Difficulty Using Its Capital Effectively

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Jiangsu Feymer Technology (SHSE:688350), it didn't seem to tick all of these boxes.

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 Feymer Technology is:

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

0.0019 = CN¥4.0m ÷ (CN¥2.5b - CN¥466m) (Based on the trailing twelve months to September 2024).

So, Jiangsu Feymer Technology has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.4%.

Check out our latest analysis for Jiangsu Feymer Technology

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangsu Feymer Technology.

How Are Returns Trending?

When we looked at the ROCE trend at Jiangsu Feymer Technology, we didn't gain much confidence. To be more specific, ROCE has fallen from 10% over the last five years. However it looks like Jiangsu Feymer Technology might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Jiangsu Feymer Technology's ROCE

Bringing it all together, while we're somewhat encouraged by Jiangsu Feymer Technology's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 25% over the last three years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 4 warning signs for Jiangsu Feymer Technology (2 are significant) you should be aware of.

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.