The Returns At Jiangsu Kuangshun Photosensitivity New-Material Stock (SZSE:300537) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Jiangsu Kuangshun Photosensitivity New-Material Stock (SZSE:300537) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Kuangshun Photosensitivity New-Material Stock:

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

0.067 = CN¥56m ÷ (CN¥1.2b - CN¥334m) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Kuangshun Photosensitivity New-Material Stock has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Chemicals industry average of 5.6%.

See our latest analysis for Jiangsu Kuangshun Photosensitivity New-Material Stock

In the above chart we have measured Jiangsu Kuangshun Photosensitivity New-Material Stock'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 Jiangsu Kuangshun Photosensitivity New-Material Stock for free.

What Can We Tell From Jiangsu Kuangshun Photosensitivity New-Material Stock's ROCE Trend?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 39% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 6.7%, it's hard to get excited about these developments.

In Conclusion...

Overall, we're not ecstatic to see Jiangsu Kuangshun Photosensitivity New-Material Stock reducing the amount of capital it employs in the business. And investors may be recognizing these trends since the stock has only returned a total of 16% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know about the risks facing Jiangsu Kuangshun Photosensitivity New-Material Stock, we've discovered 2 warning signs that you should be aware of.

While Jiangsu Kuangshun Photosensitivity New-Material Stock 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.