Some Investors May Be Worried About Ningbo Joy Intelligent Logistics TechnologyLtd's (SZSE:301198) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Although, when we looked at Ningbo Joy Intelligent Logistics TechnologyLtd (SZSE:301198), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 Ningbo Joy Intelligent Logistics TechnologyLtd is:

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

0.036 = CN¥35m ÷ (CN¥1.4b - CN¥415m) (Based on the trailing twelve months to March 2024).

Therefore, Ningbo Joy Intelligent Logistics TechnologyLtd has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Packaging industry average of 4.7%.

See our latest analysis for Ningbo Joy Intelligent Logistics TechnologyLtd

Above you can see how the current ROCE for Ningbo Joy Intelligent Logistics TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ningbo Joy Intelligent Logistics TechnologyLtd .

How Are Returns Trending?

In terms of Ningbo Joy Intelligent Logistics TechnologyLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 26% over the last five years. However it looks like Ningbo Joy Intelligent Logistics TechnologyLtd 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Ningbo Joy Intelligent Logistics TechnologyLtd's ROCE

To conclude, we've found that Ningbo Joy Intelligent Logistics TechnologyLtd is reinvesting in the business, but returns have been falling. Since the stock has declined 40% over the last year, investors may not be too optimistic on this trend improving either. 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.

If you want to know some of the risks facing Ningbo Joy Intelligent Logistics TechnologyLtd we've found 4 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While Ningbo Joy Intelligent Logistics TechnologyLtd 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.

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