Nanjing Julong Science & TechnologyLTD (SZSE:300644) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So on that note, Nanjing Julong Science & TechnologyLTD (SZSE:300644) looks quite promising in regards to its trends of return on capital.

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 Nanjing Julong Science & TechnologyLTD is:

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

0.094 = CN¥107m ÷ (CN¥2.1b - CN¥956m) (Based on the trailing twelve months to June 2024).

Therefore, Nanjing Julong Science & TechnologyLTD has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Chemicals industry average of 5.5%.

View our latest analysis for Nanjing Julong Science & TechnologyLTD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nanjing Julong Science & TechnologyLTD's ROCE against it's prior returns. If you'd like to look at how Nanjing Julong Science & TechnologyLTD has performed in the past in other metrics, you can view this free graph of Nanjing Julong Science & TechnologyLTD's past earnings, revenue and cash flow.

What Does the ROCE Trend For Nanjing Julong Science & TechnologyLTD Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 62% more capital is being employed now too. So we're very much inspired by what we're seeing at Nanjing Julong Science & TechnologyLTD thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 45% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

Our Take On Nanjing Julong Science & TechnologyLTD's ROCE

To sum it up, Nanjing Julong Science & TechnologyLTD has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 12% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing, we've spotted 1 warning sign facing Nanjing Julong Science & TechnologyLTD that you might find interesting.

While Nanjing Julong Science & TechnologyLTD isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.