JiangSu Jinji IndustrialLtd (SZSE:300798) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating JiangSu Jinji IndustrialLtd (SZSE:300798), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. To calculate this metric for JiangSu Jinji IndustrialLtd, this is the formula:

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

0.012 = CN¥24m ÷ (CN¥2.6b - CN¥569m) (Based on the trailing twelve months to September 2024).

Therefore, JiangSu Jinji IndustrialLtd has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.5%.

See our latest analysis for JiangSu Jinji IndustrialLtd

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

What Does the ROCE Trend For JiangSu Jinji IndustrialLtd Tell Us?

In terms of JiangSu Jinji IndustrialLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 9.6%, but since then they've fallen to 1.2%. However it looks like JiangSu Jinji IndustrialLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

In summary, JiangSu Jinji IndustrialLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 48% in the last five years. Therefore based on the analysis done in this article, we don't think JiangSu Jinji IndustrialLtd has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for JiangSu Jinji IndustrialLtd (of which 1 is concerning!) that you should know about.

While JiangSu Jinji IndustrialLtd 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.