What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Jilin Expressway (SHSE:601518) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jilin Expressway, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CN¥645m ÷ (CN¥5.9b - CN¥828m) (Based on the trailing twelve months to June 2023).
Therefore, Jilin Expressway has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.7% generated by the Infrastructure industry.
Check out our latest analysis for Jilin Expressway
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jilin Expressway's ROCE against it's prior returns. If you're interested in investigating Jilin Expressway's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Jilin Expressway's ROCE Trend?
Jilin Expressway's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 62% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Key Takeaway
To sum it up, Jilin Expressway is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 31% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
While Jilin Expressway looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 601518 is currently trading for a fair price.
While Jilin Expressway 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.
