Zhejiang Jiemei Electronic And Technology (SZSE:002859) May Have Issues Allocating Its Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Zhejiang Jiemei Electronic And Technology (SZSE:002859), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Zhejiang Jiemei Electronic And Technology, this is the formula:

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

0.064 = CN¥311m ÷ (CN¥5.9b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

So, 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 5.2%.

View 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.

So How Is Zhejiang Jiemei Electronic And Technology's ROCE Trending?

On the surface, the trend of ROCE at Zhejiang Jiemei Electronic And Technology doesn't inspire confidence. Around five years ago the returns on capital were 8.6%, but since then they've fallen to 6.4%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

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. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you'd like to know more about Zhejiang Jiemei Electronic And Technology, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

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.