If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Although, when we looked at Jinling Hotel Corporation (SHSE:601007), it didn't seem to tick all of these boxes.

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 Jinling Hotel Corporation, this is the formula:

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

0.048 = CN¥126m ÷ (CN¥3.9b - CN¥1.2b) (Based on the trailing twelve months to March 2023).

Therefore, Jinling Hotel Corporation has an ROCE of 4.8%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 3.9%.

Check out our latest analysis for Jinling Hotel Corporation

In the above chart we have measured Jinling Hotel Corporation'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 report for Jinling Hotel Corporation.

The Trend Of ROCE

There hasn't been much to report for Jinling Hotel Corporation's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Jinling Hotel Corporation doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Jinling Hotel Corporation has been paying out 111% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 32% of total assets, this reported ROCE would probably be less than4.8% because total capital employed would be higher.The 4.8% ROCE could be even lower if current liabilities weren't 32% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

In Conclusion...

We can conclude that in regards to Jinling Hotel Corporation's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 43% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 2 warning signs facing Jinling Hotel Corporation that you might find interesting.

While Jinling Hotel Corporation 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.