There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Jutze Intelligence TechnologyLtd (SZSE:300802), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Jutze Intelligence TechnologyLtd is:

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

0.037 = CN¥63m ÷ (CN¥1.9b - CN¥174m) (Based on the trailing twelve months to March 2024).

Thus, Jutze Intelligence TechnologyLtd has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.5%.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Jutze Intelligence TechnologyLtd's past further, check out this free graph covering Jutze Intelligence TechnologyLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 20% five years ago, while capital employed has grown 198%. That being said, Jutze Intelligence TechnologyLtd raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Jutze Intelligence TechnologyLtd's earnings and if they change as a result from the capital raise.

Our Take On Jutze Intelligence TechnologyLtd's ROCE

In summary, we're somewhat concerned by Jutze Intelligence TechnologyLtd's diminishing returns on increasing amounts of capital. It should come as no surprise then that the stock has fallen 19% over the last three years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing to note, we've identified 2 warning signs with Jutze Intelligence TechnologyLtd and understanding these should be part of your investment process.

While Jutze Intelligence TechnologyLtd 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.