Why We Like The Returns At Jiayou International LogisticsLtd (SHSE:603871)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Jiayou International LogisticsLtd (SHSE:603871) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Jiayou International LogisticsLtd, this is the formula:

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

0.27 = CN¥1.6b ÷ (CN¥8.2b - CN¥2.4b) (Based on the trailing twelve months to September 2024).

So, Jiayou International LogisticsLtd has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 7.5% earned by companies in a similar industry.

See our latest analysis for Jiayou International LogisticsLtd

Above you can see how the current ROCE for Jiayou International LogisticsLtd 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 Jiayou International LogisticsLtd .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Jiayou International LogisticsLtd. The data shows that returns on capital have increased substantially over the last five years to 27%. Basically the business is earning more per dollar of capital invested and in addition to that, 212% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jiayou International LogisticsLtd has. Since the stock has returned a staggering 233% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Jiayou International LogisticsLtd does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

Jiayou International LogisticsLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.