If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating JiangXi BaiSheng Intelligent Technology (SZSE:301083), we don't think it's current trends fit the mold of a multi-bagger.

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

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. Analysts use this formula to calculate it for JiangXi BaiSheng Intelligent Technology:

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

0.033 = CN¥27m ÷ (CN¥975m - CN¥144m) (Based on the trailing twelve months to September 2023).

Thus, JiangXi BaiSheng Intelligent Technology has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 6.1%.

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 JiangXi BaiSheng Intelligent Technology's past further, check out this free graph covering JiangXi BaiSheng Intelligent Technology's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of JiangXi BaiSheng Intelligent Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 15% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a side note, JiangXi BaiSheng Intelligent Technology has done well to pay down its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for JiangXi BaiSheng Intelligent Technology have fallen, meanwhile the business is employing more capital than it was five years ago. And long term shareholders have watched their investments stay flat over the last year. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

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

While JiangXi BaiSheng Intelligent Technology 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.