Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Boqian New Materials Stock (SHSE:605376), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Jiangsu Boqian New Materials Stock, this is the formula:

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

0.019 = CN¥30m ÷ (CN¥1.8b - CN¥211m) (Based on the trailing twelve months to September 2024).

So, Jiangsu Boqian New Materials Stock has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.8%.

In the above chart we have measured Jiangsu Boqian New Materials Stock'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 Boqian New Materials Stock for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Jiangsu Boqian New Materials Stock, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.9% from 29% five years ago. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Jiangsu Boqian New Materials Stock's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangsu Boqian New Materials Stock. And there could be an opportunity here if other metrics look good too, because the stock has declined 66% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing, we've spotted 2 warning signs facing Jiangsu Boqian New Materials Stock that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.