Returns At Shanghai Jin Jiang Online Network Service (SHSE:600650) Are On The Way Up

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.

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

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. Analysts use this formula to calculate it for Shanghai Jin Jiang Online Network Service:

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

0.00036 = CN¥1.6m ÷ (CN¥5.1b - CN¥565m) (Based on the trailing twelve months to March 2024).

So, Shanghai Jin Jiang Online Network Service has an ROCE of 0.04%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 4.5%.

View our latest analysis for Shanghai Jin Jiang Online Network Service

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shanghai Jin Jiang Online Network Service's ROCE against it's prior returns. 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.

The Trend Of ROCE

Shareholders will be relieved that Shanghai Jin Jiang Online Network Service has broken into profitability. The company now earns 0.04% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From Shanghai Jin Jiang Online Network Service's ROCE

To bring it all together, Shanghai Jin Jiang Online Network Service has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 40% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Shanghai Jin Jiang Online Network Service, we've spotted 3 warning signs, and 2 of them are a bit unpleasant.

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.

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