Some Investors May Be Worried About Beijing JCZ TechnologyLtd's (SHSE:688291) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Beijing JCZ TechnologyLtd (SHSE:688291) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Beijing JCZ TechnologyLtd, this is the formula:

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

0.017 = CN¥16m ÷ (CN¥966m - CN¥52m) (Based on the trailing twelve months to September 2024).

Therefore, Beijing JCZ TechnologyLtd has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.5%.

View our latest analysis for Beijing JCZ TechnologyLtd

In the above chart we have measured Beijing JCZ TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Beijing JCZ TechnologyLtd .

What Can We Tell From Beijing JCZ TechnologyLtd's ROCE Trend?

When we looked at the ROCE trend at Beijing JCZ TechnologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 1.7%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

The Bottom Line On Beijing JCZ TechnologyLtd's ROCE

In summary, Beijing JCZ TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 33% so the market doesn't look too hopeful on these trends strengthening any time soon. 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 spotted 1 warning sign facing Beijing JCZ TechnologyLtd that you might find interesting.

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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.