JCET Group's (SHSE:600584) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at JCET Group (SHSE:600584) so let's look a bit deeper.

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 JCET Group, this is the formula:

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

0.045 = CN¥1.6b ÷ (CN¥44b - CN¥8.2b) (Based on the trailing twelve months to March 2024).

Thus, JCET Group has an ROCE of 4.5%. Even though it's in line with the industry average of 3.9%, it's still a low return by itself.

View our latest analysis for JCET Group

In the above chart we have measured JCET Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for JCET Group .

So How Is JCET Group'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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 142%. So we're very much inspired by what we're seeing at JCET Group thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that JCET Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From JCET Group's ROCE

To sum it up, JCET Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 144% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if JCET Group can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with JCET Group and understanding it should be part of your investment process.

While JCET Group 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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