JH Educational Technology (HKG:1935) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, JH Educational Technology (HKG:1935) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for JH Educational Technology, this is the formula:

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

0.15 = CN¥365m ÷ (CN¥3.0b - CN¥554m) (Based on the trailing twelve months to December 2021).

Therefore, JH Educational Technology has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 8.8% it's much better.

See our latest analysis for JH Educational Technology

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

What Does the ROCE Trend For JH Educational Technology Tell Us?

Investors would be pleased with what's happening at JH Educational Technology. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 144% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On JH Educational Technology's ROCE

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 JH Educational Technology has. Since the stock has returned a staggering 121% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with JH Educational Technology and understanding it should be part of your investment process.

While JH Educational Technology 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.