Returns Are Gaining Momentum At Shanghai Jin Jiang Online Network Service (SHSE:600650)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Shanghai Jin Jiang Online Network Service (SHSE:600650) looks quite promising in regards to its trends of return on capital.

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 Shanghai Jin Jiang Online Network Service is:

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

0.0016 = CN¥7.2m ÷ (CN¥5.2b - CN¥533m) (Based on the trailing twelve months to September 2024).

Therefore, Shanghai Jin Jiang Online Network Service has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 5.0%.

View our latest analysis for Shanghai Jin Jiang Online Network Service

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're interested in investigating Shanghai Jin Jiang Online Network Service's past further, check out this free graph covering Shanghai Jin Jiang Online Network Service's past earnings, revenue and cash flow.

How Are Returns Trending?

Shareholders will be relieved that Shanghai Jin Jiang Online Network Service has broken into profitability. The company now earns 0.2% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

Our Take On Shanghai Jin Jiang Online Network Service's ROCE

In summary, we're delighted to see that Shanghai Jin Jiang Online Network Service has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 88% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Shanghai Jin Jiang Online Network Service (at least 2 which don't sit too well with us) , and understanding them would certainly be useful.

While Shanghai Jin Jiang Online Network Service 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.