Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Shanghai Jin Jiang International Hotels (SHSE:900934), it didn't seem to tick all of these boxes.
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. The formula for this calculation on Shanghai Jin Jiang International Hotels is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = CN¥1.7b ÷ (CN¥50b - CN¥11b) (Based on the trailing twelve months to September 2023).
Thus, Shanghai Jin Jiang International Hotels has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.3%.
See our latest analysis for Shanghai Jin Jiang International Hotels
Above you can see how the current ROCE for Shanghai Jin Jiang International Hotels compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Shanghai Jin Jiang International Hotels.
So How Is Shanghai Jin Jiang International Hotels' ROCE Trending?
Things have been pretty stable at Shanghai Jin Jiang International Hotels, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Shanghai Jin Jiang International Hotels doesn't end up being a multi-bagger in a few years time.
The Bottom Line
In summary, Shanghai Jin Jiang International Hotels isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 21% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
Like most companies, Shanghai Jin Jiang International Hotels does come with some risks, and we've found 2 warning signs that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.