There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Shanghai Jin Jiang Online Network Service (SHSE:600650) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Shanghai Jin Jiang Online Network Service, this is the formula:

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

0.0016 = CN¥7.2m ÷ (CN¥5.2b - CN¥533m) (Based on the trailing twelve months to September 2024).

Thus, Shanghai Jin Jiang Online Network Service has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 5.0%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shanghai Jin Jiang Online Network Service's ROCE against it's prior returns. If you're interested in investigating Shanghai Jin Jiang Online Network Service's past further, check out this free graph covering Shanghai Jin Jiang Online Network Service's past earnings, revenue and cash flow.

The Trend Of ROCE

Shanghai Jin Jiang Online Network Service has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 0.2% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line On Shanghai Jin Jiang Online Network Service's ROCE

To sum it up, Shanghai Jin Jiang Online Network Service is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 82% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Shanghai Jin Jiang Online Network Service can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Shanghai Jin Jiang Online Network Service (including 1 which is a bit unpleasant) .

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.

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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.