Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Jiangsu New Technology GroupLtd (SZSE:301229) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 Jiangsu New Technology GroupLtd, this is the formula:

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

0.074 = CN¥93m ÷ (CN¥1.6b - CN¥326m) (Based on the trailing twelve months to March 2024).

Thus, Jiangsu New Technology GroupLtd has an ROCE of 7.4%. Even though it's in line with the industry average of 6.9%, it's still a low return by itself.

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're interested in investigating Jiangsu New Technology GroupLtd's past further, check out this free graph covering Jiangsu New Technology GroupLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Jiangsu New Technology GroupLtd Tell Us?

In terms of Jiangsu New Technology GroupLtd's historical ROCE movements, the trend isn't fantastic. Around three years ago the returns on capital were 21%, but since then they've fallen to 7.4%. 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.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Jiangsu New Technology GroupLtd is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 29% over the last year, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

Jiangsu New Technology GroupLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 301229 on our platform quite valuable.

While Jiangsu New Technology GroupLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com