Returns On Capital At Jadard Technology (SHSE:688252) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Jadard Technology (SHSE:688252) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Jadard Technology, this is the formula:

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

0.088 = CN¥185m ÷ (CN¥2.4b - CN¥348m) (Based on the trailing twelve months to September 2024).

So, Jadard Technology has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Semiconductor industry average of 5.0%.

See our latest analysis for Jadard Technology

In the above chart we have measured Jadard Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jadard Technology for free.

How Are Returns Trending?

The returns on capital haven't changed much for Jadard Technology in recent years. Over the past five years, ROCE has remained relatively flat at around 8.8% and the business has deployed 1,927% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 14% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

Long story short, while Jadard Technology has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 75% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Jadard Technology, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Jadard Technology 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.