There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Jiangyin Haida Rubber And Plastic (SZSE:300320) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Jiangyin Haida Rubber And Plastic:

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

0.079 = CN¥185m ÷ (CN¥3.5b - CN¥1.1b) (Based on the trailing twelve months to March 2024).

Therefore, Jiangyin Haida Rubber And Plastic has an ROCE of 7.9%. On its own that's a low return, but compared to the average of 5.5% generated by the Chemicals industry, it's much better.

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jiangyin Haida Rubber And Plastic.

What Can We Tell From Jiangyin Haida Rubber And Plastic's ROCE Trend?

In terms of Jiangyin Haida Rubber And Plastic's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.9% from 14% five years ago. 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.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jiangyin Haida Rubber And Plastic. And the stock has followed suit returning a meaningful 99% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Jiangyin Haida Rubber And Plastic, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Jiangyin Haida Rubber And Plastic 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.

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