Here's What's Concerning About Jin Medical International's (NASDAQ:ZJYL) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Jin Medical International (NASDAQ:ZJYL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. Analysts use this formula to calculate it for Jin Medical International:

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

0.07 = US$2.0m ÷ (US$49m - US$21m) (Based on the trailing twelve months to March 2025).

Thus, Jin Medical International has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.8%.

Check out our latest analysis for Jin Medical International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jin Medical International's ROCE against it's prior returns. If you'd like to look at how Jin Medical International has performed in the past in other metrics, you can view this free graph of Jin Medical International's past earnings, revenue and cash flow.

So How Is Jin Medical International's ROCE Trending?

On the surface, the trend of ROCE at Jin Medical International doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.0% from 28% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Jin Medical International's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Jin Medical International's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jin Medical International. Despite these promising trends, the stock has collapsed 80% over the last year, so there could be other factors hurting the company's prospects. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.

If you want to know some of the risks facing Jin Medical International we've found 4 warning signs (1 is concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.