JD Logistics (HKG:2618) Is Doing The Right Things To Multiply Its Share Price

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in JD Logistics' (HKG:2618) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

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 JD Logistics, this is the formula:

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

0.079 = CN¥6.2b ÷ (CN¥118b - CN¥40b) (Based on the trailing twelve months to March 2025).

Therefore, JD Logistics has an ROCE of 7.9%. On its own, that's a low figure but it's around the 7.3% average generated by the Logistics industry.

See our latest analysis for JD Logistics

Above you can see how the current ROCE for JD Logistics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering JD Logistics for free.

How Are Returns Trending?

The fact that JD Logistics is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.9% on its capital. And unsurprisingly, like most companies trying to break into the black, JD Logistics is utilizing 262% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On JD Logistics' ROCE

In summary, it's great to see that JD Logistics has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 20% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing JD Logistics, we've discovered 1 warning sign that you should be aware of.

While JD Logistics 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.