What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Nantong Jianghai Capacitor (SZSE:002484) and its trend of ROCE, we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Nantong Jianghai Capacitor is:

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

0.12 = CN¥719m ÷ (CN¥7.4b - CN¥1.5b) (Based on the trailing twelve months to March 2024).

So, Nantong Jianghai Capacitor has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.0% it's much better.

In the above chart we have measured Nantong Jianghai Capacitor's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Nantong Jianghai Capacitor .

How Are Returns Trending?

Nantong Jianghai Capacitor is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 67%. So we're very much inspired by what we're seeing at Nantong Jianghai Capacitor thanks to its ability to profitably reinvest capital.

The Bottom Line On Nantong Jianghai Capacitor's ROCE

In summary, it's great to see that Nantong Jianghai Capacitor can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 130% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Nantong Jianghai Capacitor, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Nantong Jianghai Capacitor 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com