What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Having said that, from a first glance at JL Mag Rare-Earth (SZSE:300748) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for JL Mag Rare-Earth, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = CN¥294m ÷ (CN¥12b - CN¥3.5b) (Based on the trailing twelve months to March 2024).
Thus, JL Mag Rare-Earth has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 6.0%.
SZSE:300748 Return on Capital Employed June 21st 2024
Above you can see how the current ROCE for JL Mag Rare-Earth compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for JL Mag Rare-Earth .
How Are Returns Trending?
The trend of ROCE doesn't look fantastic because it's fallen from 13% five years ago, while the business's capital employed increased by 579%. Usually this isn't ideal, but given JL Mag Rare-Earth conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. JL Mag Rare-Earth probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.
On a related note, JL Mag Rare-Earth has decreased its current liabilities to 30% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
The Key Takeaway
From the above analysis, we find it rather worrisome that returns on capital and sales for JL Mag Rare-Earth have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 38% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
On a final note, we found 2 warning signs for JL Mag Rare-Earth (1 doesn't sit too well with us) you should be aware of.
While JL Mag Rare-Earth isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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
長期的に資産価値を倍増させることができる株式を見つけるための早期トレンドは何ですか？理想的には、ビジネスは2つの傾向を示します。第一に、資本利益の増加、第二に、資本投下額の増加です。これにより、増加する利回りで利益を再投資しているビジネスであることが示されます。この点を踏まえて、私たちはPerficient（NASDAQ：PRFT）でいくつか有望なトレンドを把握し、詳しく見てみましょう。資本利回り (ROCE)とは何ですか？わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。現在、Bumi Armada BerhadのROCEは12％です。それは、資本利回りの通常のリターンであり、エネルギーサービス業界が生成した9.8％のリターンに近い値です。Bumi Armada Berhadが前のROCEと前のパフォーマンスを比較した上図では、将来のROCEがより重要であるとされています。もし興味がある場合は、Bumi Armada Berhadの無料アナリストレポートをご覧いただけます。当社が投資している資本を計算すると、投資家の魅力的な株式を継続的に投資することができる会社があるという意味です。これはマシンと複利効果を持つ特徴です。ただし、JL Mag Rare-Earth（SZSE：300748）を初めて見ると、収益がどのように伸びているかについて、驚嘆するほどのことはありませんが、より深く見てみましょう。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会（ASIC）の管理を受けております（AFSL No. 224663）。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会（ASIC）の管理を受けております（AFSL No. 224663）。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
