If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Jiangxi Xinyu Guoke Technology (SZSE:300722) so let's look a bit deeper.

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 Jiangxi Xinyu Guoke Technology is:

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

0.13 = CN¥86m ÷ (CN¥840m - CN¥191m) (Based on the trailing twelve months to September 2024).

Therefore, Jiangxi Xinyu Guoke Technology has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.4% generated by the Aerospace & Defense industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangxi Xinyu Guoke Technology.

What Does the ROCE Trend For Jiangxi Xinyu Guoke Technology Tell Us?

The trends we've noticed at Jiangxi Xinyu Guoke Technology are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 42%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Jiangxi Xinyu Guoke Technology's ROCE

All in all, it's terrific to see that Jiangxi Xinyu Guoke Technology is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 194% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Jiangxi Xinyu Guoke Technology can keep these trends up, it could have a bright future ahead.

Jiangxi Xinyu Guoke Technology does have some risks though, and we've spotted 1 warning sign for Jiangxi Xinyu Guoke Technology that you might be interested in.

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.

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