Jiangsu JieJie Microelectronics' (SZSE:300623) Returns On Capital Not Reflecting Well On The Business

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Jiangsu JieJie Microelectronics (SZSE:300623), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jiangsu JieJie Microelectronics:

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

0.053 = CN¥342m ÷ (CN¥7.7b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

Thus, Jiangsu JieJie Microelectronics has an ROCE of 5.3%. Even though it's in line with the industry average of 4.8%, it's still a low return by itself.

Check out our latest analysis for Jiangsu JieJie Microelectronics

Above you can see how the current ROCE for Jiangsu JieJie Microelectronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu JieJie Microelectronics .

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 12% five years ago, while capital employed has grown 350%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. Jiangsu JieJie Microelectronics probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Jiangsu JieJie Microelectronics is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 95% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

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

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.