If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Zhejiang Jiemei Electronic And Technology (SZSE:002859), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Zhejiang Jiemei Electronic And Technology is:

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

0.064 = CN¥311m ÷ (CN¥5.9b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang Jiemei Electronic And Technology has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Packaging industry average of 5.2%.

In the above chart we have measured Zhejiang Jiemei Electronic And Technology's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang Jiemei Electronic And Technology .

What Does the ROCE Trend For Zhejiang Jiemei Electronic And Technology Tell Us?

On the surface, the trend of ROCE at Zhejiang Jiemei Electronic And Technology doesn't inspire confidence. Around five years ago the returns on capital were 8.6%, but since then they've fallen to 6.4%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Zhejiang Jiemei Electronic And Technology's ROCE

While returns have fallen for Zhejiang Jiemei Electronic And Technology in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 11% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Zhejiang Jiemei Electronic And Technology does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

While Zhejiang Jiemei Electronic And Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.