If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 Chengdu Jiafaantai Education TechnologyLtd (SZSE:300559) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Chengdu Jiafaantai Education TechnologyLtd, this is the formula:

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

0.083 = CN¥100m ÷ (CN¥1.4b - CN¥210m) (Based on the trailing twelve months to September 2023).

So, Chengdu Jiafaantai Education TechnologyLtd has an ROCE of 8.3%. In absolute terms, that's a low return, but it's much better than the Communications industry average of 5.3%.

View our latest analysis for Chengdu Jiafaantai Education TechnologyLtd

In the above chart we have measured Chengdu Jiafaantai Education TechnologyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Chengdu Jiafaantai Education TechnologyLtd.

What Does the ROCE Trend For Chengdu Jiafaantai Education TechnologyLtd Tell Us?

When we looked at the ROCE trend at Chengdu Jiafaantai Education TechnologyLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 15% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Chengdu Jiafaantai Education TechnologyLtd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Chengdu Jiafaantai Education TechnologyLtd is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 17% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to continue researching Chengdu Jiafaantai Education TechnologyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Chengdu Jiafaantai Education TechnologyLtd 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.