Returns On Capital At Zhejiang Jinke Tom Culture Industry (SZSE:300459) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Zhejiang Jinke Tom Culture Industry (SZSE:300459) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Zhejiang Jinke Tom Culture Industry is:

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

0.083 = CN¥301m ÷ (CN¥5.2b - CN¥1.6b) (Based on the trailing twelve months to March 2024).

So, Zhejiang Jinke Tom Culture Industry has an ROCE of 8.3%. In absolute terms, that's a low return, but it's much better than the Entertainment industry average of 5.4%.

Check out our latest analysis for Zhejiang Jinke Tom Culture Industry

In the above chart we have measured Zhejiang Jinke Tom Culture Industry's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zhejiang Jinke Tom Culture Industry .

How Are Returns Trending?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 65% in that same period. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. In addition to that, since the ROCE doesn't scream "quality" at 8.3%, it's hard to get excited about these developments.

What We Can Learn From Zhejiang Jinke Tom Culture Industry's ROCE

Overall, we're not ecstatic to see Zhejiang Jinke Tom Culture Industry reducing the amount of capital it employs in the business. And investors may be recognizing these trends since the stock has only returned a total of 9.2% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Zhejiang Jinke Tom Culture Industry does have some risks though, and we've spotted 1 warning sign for Zhejiang Jinke Tom Culture Industry that you might be interested in.

While Zhejiang Jinke Tom Culture Industry 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.