Investors Will Want Jiangsu Leadmicro Nano-Equipment Technology's (SHSE:688147) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Jiangsu Leadmicro Nano-Equipment Technology (SHSE:688147) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Leadmicro Nano-Equipment Technology, this is the formula:

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

0.08 = CN¥211m ÷ (CN¥8.5b - CN¥5.9b) (Based on the trailing twelve months to March 2024).

Therefore, Jiangsu Leadmicro Nano-Equipment Technology has an ROCE of 8.0%. On its own that's a low return, but compared to the average of 4.2% generated by the Semiconductor industry, it's much better.

View our latest analysis for Jiangsu Leadmicro Nano-Equipment Technology

In the above chart we have measured Jiangsu Leadmicro Nano-Equipment Technology'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 Jiangsu Leadmicro Nano-Equipment Technology .

What Does the ROCE Trend For Jiangsu Leadmicro Nano-Equipment Technology Tell Us?

We're delighted to see that Jiangsu Leadmicro Nano-Equipment Technology is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 8.0% on its capital. Not only that, but the company is utilizing 3,514% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Jiangsu Leadmicro Nano-Equipment Technology has decreased current liabilities to 69% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Jiangsu Leadmicro Nano-Equipment Technology's ROCE

In summary, it's great to see that Jiangsu Leadmicro Nano-Equipment Technology has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 51% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 1 warning sign with Jiangsu Leadmicro Nano-Equipment Technology and understanding it should be part of your investment process.

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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.