Returns On Capital At Jiangsu JieJie Microelectronics (SZSE:300623) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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?

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. The formula for this calculation on Jiangsu JieJie Microelectronics is:

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

0.034 = CN¥214m ÷ (CN¥7.7b - CN¥1.4b) (Based on the trailing twelve months to December 2023).

So, Jiangsu JieJie Microelectronics has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.3%.

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'd like, you can check out the forecasts from the analysts covering Jiangsu JieJie Microelectronics for free.

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 12% five years ago, while capital employed has grown 360%. 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. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Jiangsu JieJie Microelectronics might not have received a full period of earnings contribution from it.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu JieJie Microelectronics. Furthermore the stock has climbed 60% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing to note, we've identified 2 warning signs with Jiangsu JieJie Microelectronics and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.