If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Jiangsu Zhongtian Technology (SHSE:600522) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Jiangsu Zhongtian Technology is:

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

0.075 = CN¥2.9b ÷ (CN¥58b - CN¥19b) (Based on the trailing twelve months to September 2024).

So, Jiangsu Zhongtian Technology has an ROCE of 7.5%. On its own that's a low return, but compared to the average of 5.8% 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Jiangsu Zhongtian Technology .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Jiangsu Zhongtian Technology. Over the past five years, ROCE has remained relatively flat at around 7.5% and the business has deployed 45% 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.

What We Can Learn From Jiangsu Zhongtian Technology's ROCE

Long story short, while Jiangsu Zhongtian Technology has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 63% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Jiangsu Zhongtian Technology could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 600522 on our platform quite valuable.

While Jiangsu Zhongtian Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.