If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Jiangsu Zhongtian Technology (SHSE:600522), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Jiangsu Zhongtian Technology, this is the formula:

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

0.093 = CN¥3.4b ÷ (CN¥54b - CN¥18b) (Based on the trailing twelve months to September 2023).

Thus, Jiangsu Zhongtian Technology has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 6.3% generated by the Electrical industry, it's much better.

In the above chart we have measured Jiangsu Zhongtian Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jiangsu Zhongtian Technology for free.

What Can We Tell From Jiangsu Zhongtian Technology's ROCE Trend?

The returns on capital haven't changed much for Jiangsu Zhongtian Technology in recent years. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 84% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Jiangsu Zhongtian Technology has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 30% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in Jiangsu Zhongtian Technology it's worth checking out our FREE intrinsic value approximation for 600522 to see if it's trading at an attractive price in other respects.

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.