What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Jiang Su Suyan JingshenLtd's (SHSE:603299) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jiang Su Suyan JingshenLtd, this is the formula:

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

0.11 = CN¥839m ÷ (CN¥11b - CN¥3.2b) (Based on the trailing twelve months to March 2024).

So, Jiang Su Suyan JingshenLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

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

What Does the ROCE Trend For Jiang Su Suyan JingshenLtd Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 84% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Jiang Su Suyan JingshenLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Jiang Su Suyan JingshenLtd has done well to reduce current liabilities to 30% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Jiang Su Suyan JingshenLtd's ROCE

To sum it up, Jiang Su Suyan JingshenLtd has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 44% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for Jiang Su Suyan JingshenLtd you'll probably want to know about.

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.

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.

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