Returns Are Gaining Momentum At JinkoSolar Holding (NYSE:JKS)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at JinkoSolar Holding (NYSE:JKS) and its trend of ROCE, we really liked what we saw.

Understanding 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 JinkoSolar Holding, this is the formula:

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

0.13 = CN¥7.1b ÷ (CN¥127b - CN¥73b) (Based on the trailing twelve months to September 2023).

So, JinkoSolar Holding has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Semiconductor industry average of 11%.

See our latest analysis for JinkoSolar Holding

Above you can see how the current ROCE for JinkoSolar Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for JinkoSolar Holding .

So How Is JinkoSolar Holding's ROCE Trending?

JinkoSolar Holding is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 387%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, JinkoSolar Holding has decreased current liabilities to 58% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

All in all, it's terrific to see that JinkoSolar Holding is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

JinkoSolar Holding does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

While JinkoSolar Holding 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.