Here's What To Make Of Shenzhen Jieshun Science and Technology IndustryLtd's (SZSE:002609) Decelerating 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Shenzhen Jieshun Science and Technology IndustryLtd (SZSE:002609), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Shenzhen Jieshun Science and Technology IndustryLtd:

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

0.033 = CN¥96m ÷ (CN¥3.7b - CN¥867m) (Based on the trailing twelve months to March 2024).

Thus, Shenzhen Jieshun Science and Technology IndustryLtd has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.2%.

See our latest analysis for Shenzhen Jieshun Science and Technology IndustryLtd

In the above chart we have measured Shenzhen Jieshun Science and Technology IndustryLtd'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 Shenzhen Jieshun Science and Technology IndustryLtd .

What The Trend Of ROCE Can Tell Us

In terms of Shenzhen Jieshun Science and Technology IndustryLtd's historical ROCE trend, it doesn't exactly demand attention. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 3.3%. 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.

The Bottom Line On Shenzhen Jieshun Science and Technology IndustryLtd's ROCE

Long story short, while Shenzhen Jieshun Science and Technology IndustryLtd has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 5.5% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Shenzhen Jieshun Science and Technology IndustryLtd does have some risks though, and we've spotted 1 warning sign for Shenzhen Jieshun Science and Technology IndustryLtd that you might be interested in.

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.

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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.

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