Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Jiangsu Shemar ElectricLtd's (SHSE:603530) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Jiangsu Shemar ElectricLtd, this is the formula:

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

0.13 = CN¥215m ÷ (CN¥1.9b - CN¥237m) (Based on the trailing twelve months to March 2024).

Thus, Jiangsu Shemar ElectricLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.0% 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 Jiangsu Shemar ElectricLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangsu Shemar ElectricLtd.

What Does the ROCE Trend For Jiangsu Shemar ElectricLtd Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 106% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Jiangsu Shemar ElectricLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Jiangsu Shemar ElectricLtd's ROCE

The main thing to remember is that Jiangsu Shemar ElectricLtd has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 42% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we found 3 warning signs for Jiangsu Shemar ElectricLtd (1 is a bit concerning) you should be aware of.

While Jiangsu Shemar ElectricLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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