If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Having said that, from a first glance at Jiangxi Special Electric MotorLtd (SZSE:002176) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Jiangxi Special Electric MotorLtd:

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

0.10 = CN¥517m ÷ (CN¥6.6b - CN¥1.7b) (Based on the trailing twelve months to September 2023).

Thus, Jiangxi Special Electric MotorLtd has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Electrical industry.

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

How Are Returns Trending?

Things have been pretty stable at Jiangxi Special Electric MotorLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Jiangxi Special Electric MotorLtd doesn't end up being a multi-bagger in a few years time.

On a side note, Jiangxi Special Electric MotorLtd has done well to reduce current liabilities to 26% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Jiangxi Special Electric MotorLtd's ROCE

We can conclude that in regards to Jiangxi Special Electric MotorLtd's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 47% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 1 warning sign for Jiangxi Special Electric MotorLtd that we think you should be aware of.

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.