The Returns At Jiangsu High Hope International Group (SHSE:600981) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Jiangsu High Hope International Group (SHSE:600981) 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?

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. To calculate this metric for Jiangsu High Hope International Group, this is the formula:

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

0.012 = CN¥112m ÷ (CN¥26b - CN¥17b) (Based on the trailing twelve months to September 2023).

Therefore, Jiangsu High Hope International Group has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 5.5%.

See our latest analysis for Jiangsu High Hope International Group

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 Jiangsu High Hope International Group's past further, check out this free graph covering Jiangsu High Hope International Group's past earnings, revenue and cash flow.

What Can We Tell From Jiangsu High Hope International Group's ROCE Trend?

There hasn't been much to report for Jiangsu High Hope International Group's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Jiangsu High Hope International Group in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a separate but related note, it's important to know that Jiangsu High Hope International Group has a current liabilities to total assets ratio of 65%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Jiangsu High Hope International Group's ROCE

We can conclude that in regards to Jiangsu High Hope International Group's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 42% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Jiangsu High Hope International Group has the makings of a multi-bagger.

If you'd like to know about the risks facing Jiangsu High Hope International Group, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.