JinFu Technology (SZSE:003018) Will Want To Turn Around Its Return Trends

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Although, when we looked at JinFu Technology (SZSE:003018), 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 JinFu Technology is:

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

0.094 = CN¥142m ÷ (CN¥1.8b - CN¥271m) (Based on the trailing twelve months to June 2024).

Therefore, JinFu Technology has an ROCE of 9.4%. On its own that's a low return, but compared to the average of 5.3% generated by the Packaging industry, it's much better.

Check out our latest analysis for JinFu 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're interested in investigating JinFu Technology's past further, check out this free graph covering JinFu Technology's past earnings, revenue and cash flow.

So How Is JinFu Technology's ROCE Trending?

In terms of JinFu Technology's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.4% from 17% five years ago. 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. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From JinFu Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for JinFu Technology. And there could be an opportunity here if other metrics look good too, because the stock has declined 12% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know more about JinFu Technology, we've spotted 2 warning signs, and 1 of them is a bit concerning.

While JinFu 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.