Jahen Household Products (SZSE:300955) May Have Issues Allocating Its Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after investigating Jahen Household Products (SZSE:300955), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Jahen Household Products is:

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

0.0092 = CN¥13m ÷ (CN¥1.8b - CN¥441m) (Based on the trailing twelve months to September 2024).

Therefore, Jahen Household Products has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Packaging industry average of 5.2%.

Check out our latest analysis for Jahen Household Products

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 Jahen Household Products.

So How Is Jahen Household Products' ROCE Trending?

When we looked at the ROCE trend at Jahen Household Products, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.9% from 18% five years ago. However it looks like Jahen Household Products 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.

On a side note, Jahen Household Products has done well to pay down its current liabilities to 24% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Jahen Household Products' ROCE

To conclude, we've found that Jahen Household Products is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 39% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 5 warning signs we've spotted with Jahen Household Products (including 3 which make us uncomfortable) .

While Jahen Household Products 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.