Investors Could Be Concerned With Jones Tech's (SZSE:300684) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Jones Tech (SZSE:300684) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. The formula for this calculation on Jones Tech is:

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

0.041 = CN¥80m ÷ (CN¥2.3b - CN¥328m) (Based on the trailing twelve months to March 2024).

Therefore, Jones Tech has an ROCE of 4.1%. On its own, that's a low figure but it's around the 5.2% average generated by the Electronic industry.

See our latest analysis for Jones Tech

Above you can see how the current ROCE for Jones Tech compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jones Tech .

So How Is Jones Tech's ROCE Trending?

We weren't thrilled with the trend because Jones Tech's ROCE has reduced by 83% over the last five years, while the business employed 179% more capital. Usually this isn't ideal, but given Jones Tech conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Jones Tech's earnings and if they change as a result from the capital raise.

In Conclusion...

In summary, we're somewhat concerned by Jones Tech's diminishing returns on increasing amounts of capital. Despite the concerning underlying trends, the stock has actually gained 1.8% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know about the risks facing Jones Tech, we've discovered 4 warning signs that you should be aware of.

While Jones Tech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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