The Return Trends At Zhejiang JIULI Hi-tech MetalsLtd (SZSE:002318) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Zhejiang JIULI Hi-tech MetalsLtd (SZSE:002318) and its trend of ROCE, we really liked what we saw.

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

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. Analysts use this formula to calculate it for Zhejiang JIULI Hi-tech MetalsLtd:

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

0.18 = CN¥1.5b ÷ (CN¥14b - CN¥5.7b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang JIULI Hi-tech MetalsLtd has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 6.8% it's much better.

See our latest analysis for Zhejiang JIULI Hi-tech MetalsLtd

In the above chart we have measured Zhejiang JIULI Hi-tech MetalsLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang JIULI Hi-tech MetalsLtd .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Zhejiang JIULI Hi-tech MetalsLtd are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 83%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 41% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

To sum it up, Zhejiang JIULI Hi-tech MetalsLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 216% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Zhejiang JIULI Hi-tech MetalsLtd can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Zhejiang JIULI Hi-tech MetalsLtd that we think you should be aware of.

While Zhejiang JIULI Hi-tech MetalsLtd 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.