Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Jinzi HamLtd (SZSE:002515), 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 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. Analysts use this formula to calculate it for Jinzi HamLtd:

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

0.0041 = CN¥11m ÷ (CN¥2.6b - CN¥39m) (Based on the trailing twelve months to September 2024).

Therefore, Jinzi HamLtd has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jinzi HamLtd's ROCE against it's prior returns. If you'd like to look at how Jinzi HamLtd has performed in the past in other metrics, you can view this free graph of Jinzi HamLtd's past earnings, revenue and cash flow.

So How Is Jinzi HamLtd's ROCE Trending?

On the surface, the trend of ROCE at Jinzi HamLtd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.4% from 1.8% five years ago. However it looks like Jinzi HamLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Jinzi HamLtd's ROCE

To conclude, we've found that Jinzi HamLtd is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 0.6% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Jinzi HamLtd does have some risks though, and we've spotted 1 warning sign for Jinzi HamLtd that you might be interested in.

While Jinzi HamLtd 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.