Jiangsu Zhengdan Chemical Industry (SZSE:300641) Could Become A Multi-Bagger

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Jiangsu Zhengdan Chemical Industry (SZSE:300641) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Jiangsu Zhengdan Chemical Industry:

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

0.36 = CN¥940m ÷ (CN¥3.1b - CN¥447m) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Zhengdan Chemical Industry has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 5.6%.

See our latest analysis for Jiangsu Zhengdan Chemical Industry

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangsu Zhengdan Chemical Industry.

What Can We Tell From Jiangsu Zhengdan Chemical Industry's ROCE Trend?

Jiangsu Zhengdan Chemical Industry is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 36%. Basically the business is earning more per dollar of capital invested and in addition to that, 100% more capital is being employed now too. So we're very much inspired by what we're seeing at Jiangsu Zhengdan Chemical Industry thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Jiangsu Zhengdan Chemical Industry is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 458% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Jiangsu Zhengdan Chemical Industry can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Jiangsu Zhengdan Chemical Industry (of which 2 are a bit concerning!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.