Here's What's Concerning About Chengdu Jiafaantai Education TechnologyLtd's (SZSE:300559) Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. In light of that, when we looked at Chengdu Jiafaantai Education TechnologyLtd (SZSE:300559) and its ROCE trend, we weren't exactly thrilled.

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

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. The formula for this calculation on Chengdu Jiafaantai Education TechnologyLtd is:

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

0.041 = CN¥51m ÷ (CN¥1.4b - CN¥171m) (Based on the trailing twelve months to September 2024).

Therefore, Chengdu Jiafaantai Education TechnologyLtd has an ROCE of 4.1%. Even though it's in line with the industry average of 4.1%, it's still a low return by itself.

Check out our latest analysis for Chengdu Jiafaantai Education TechnologyLtd

In the above chart we have measured Chengdu Jiafaantai Education TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Chengdu Jiafaantai Education TechnologyLtd .

So How Is Chengdu Jiafaantai Education TechnologyLtd's ROCE Trending?

In terms of Chengdu Jiafaantai Education TechnologyLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.1% from 22% five years ago. 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

Bringing it all together, while we're somewhat encouraged by Chengdu Jiafaantai Education TechnologyLtd's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a separate note, we've found 4 warning signs for Chengdu Jiafaantai Education TechnologyLtd you'll probably want to know about.

While Chengdu Jiafaantai Education TechnologyLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.