We Like These Underlying Return On Capital Trends At JH Educational Technology (HKG:1935)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at JH Educational Technology (HKG:1935) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.14 = CN¥313m ÷ (CN¥2.4b - CN¥144m) (Based on the trailing twelve months to June 2021).

Thus, JH Educational Technology has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Consumer Services industry.

View our latest analysis for JH Educational Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating JH Educational Technology's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is JH Educational Technology's ROCE Trending?

We like the trends that we're seeing from JH Educational Technology. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 104%. So we're very much inspired by what we're seeing at JH Educational Technology thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 6.0%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On JH Educational Technology's ROCE

All in all, it's terrific to see that JH Educational Technology is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 43% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching JH Educational Technology, you might be interested to know about the 2 warning signs that our analysis has discovered.

While JH Educational Technology 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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