JinXianDai Information IndustryLtd (SZSE:300830) Is Reinvesting At Lower Rates Of Return

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 JinXianDai Information IndustryLtd (SZSE:300830), 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. The formula for this calculation on JinXianDai Information IndustryLtd is:

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

0.02 = CN¥24m ÷ (CN¥1.3b - CN¥105m) (Based on the trailing twelve months to September 2023).

So, JinXianDai Information IndustryLtd has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Software industry average of 2.7%.

View our latest analysis for JinXianDai Information IndustryLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how JinXianDai Information IndustryLtd has performed in the past in other metrics, you can view this free graph of JinXianDai Information IndustryLtd's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of JinXianDai Information IndustryLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.0% from 13% five years ago. However it looks like JinXianDai Information IndustryLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On JinXianDai Information IndustryLtd's ROCE

In summary, JinXianDai Information IndustryLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 42% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 4 warning signs with JinXianDai Information IndustryLtd (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.

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.

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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.