Investors Could Be Concerned With Zhejiang Jiemei Electronic And Technology's (SZSE:002859) Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Zhejiang Jiemei Electronic And Technology (SZSE:002859) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Zhejiang Jiemei Electronic And Technology:

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

0.064 = CN¥273m ÷ (CN¥5.2b - CN¥893m) (Based on the trailing twelve months to December 2023).

Thus, Zhejiang Jiemei Electronic And Technology has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Packaging industry average of 4.4%.

See our latest analysis for Zhejiang Jiemei Electronic And Technology

In the above chart we have measured Zhejiang Jiemei Electronic And Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Zhejiang Jiemei Electronic And Technology for free.

What Does the ROCE Trend For Zhejiang Jiemei Electronic And Technology Tell Us?

We weren't thrilled with the trend because Zhejiang Jiemei Electronic And Technology's ROCE has reduced by 62% over the last five years, while the business employed 144% more capital. That being said, Zhejiang Jiemei Electronic And Technology raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Zhejiang Jiemei Electronic And Technology's earnings and if they change as a result from the capital raise.

The Bottom Line

While returns have fallen for Zhejiang Jiemei Electronic And Technology in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 14% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you want to continue researching Zhejiang Jiemei Electronic And Technology, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Zhejiang Jiemei Electronic And 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.