Returns Are Gaining Momentum At Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd (SHSE:600363)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So on that note, Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd (SHSE:600363) looks quite promising in regards to its trends of return on capital.

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 Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd, this is the formula:

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

0.014 = CN¥70m ÷ (CN¥7.7b - CN¥2.6b) (Based on the trailing twelve months to March 2024).

Thus, Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 3.9%.

View our latest analysis for Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd

In the above chart we have measured Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd'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 Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd .

So How Is Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 1.4%. The amount of capital employed has increased too, by 81%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 34%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 600363 on our platform that is definitely worth checking out.

While Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd 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.

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