Returns On Capital At Shanghai Jinjiang Shipping (Group) (SHSE:601083) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Having said that, from a first glance at Shanghai Jinjiang Shipping (Group) (SHSE:601083) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Shanghai Jinjiang Shipping (Group):

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

0.089 = CN¥768m ÷ (CN¥10b - CN¥1.4b) (Based on the trailing twelve months to September 2024).

Therefore, Shanghai Jinjiang Shipping (Group) has an ROCE of 8.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.8%.

See our latest analysis for Shanghai Jinjiang Shipping (Group)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shanghai Jinjiang Shipping (Group)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shanghai Jinjiang Shipping (Group).

How Are Returns Trending?

In terms of Shanghai Jinjiang Shipping (Group)'s historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 20% over the last one year. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 Key Takeaway

In summary, Shanghai Jinjiang Shipping (Group) 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 23% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Shanghai Jinjiang Shipping (Group) has the makings of a multi-bagger.

One more thing to note, we've identified 1 warning sign with Shanghai Jinjiang Shipping (Group) and understanding this should be part of your investment process.

While Shanghai Jinjiang Shipping (Group) 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.