Jiangsu Asia-Pacific Light Alloy Technology (SZSE:002540) 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. 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. With that in mind, we've noticed some promising trends at Jiangsu Asia-Pacific Light Alloy Technology (SZSE:002540) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Jiangsu Asia-Pacific Light Alloy Technology:

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

0.085 = CN¥568m ÷ (CN¥7.5b - CN¥826m) (Based on the trailing twelve months to September 2024).

Therefore, Jiangsu Asia-Pacific Light Alloy Technology has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 6.8%.

View our latest analysis for Jiangsu Asia-Pacific Light Alloy Technology

Above you can see how the current ROCE for Jiangsu Asia-Pacific Light Alloy Technology 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 Asia-Pacific Light Alloy Technology for free.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 8.5%. The amount of capital employed has increased too, by 47%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Jiangsu Asia-Pacific Light Alloy Technology's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jiangsu Asia-Pacific Light Alloy Technology has. Since the stock has returned a solid 68% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Jiangsu Asia-Pacific Light Alloy Technology can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Jiangsu Asia-Pacific Light Alloy Technology (1 doesn't sit too well with us) you should be aware of.

While Jiangsu Asia-Pacific Light Alloy Technology 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.