There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Jilin Electric PowerLtd (SZSE:000875) 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Jilin Electric PowerLtd, this is the formula:

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

0.055 = CN¥3.4b ÷ (CN¥78b - CN¥16b) (Based on the trailing twelve months to March 2024).

Therefore, Jilin Electric PowerLtd has an ROCE of 5.5%. On its own, that's a low figure but it's around the 5.9% average generated by the Renewable Energy industry.

Above you can see how the current ROCE for Jilin Electric PowerLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jilin Electric PowerLtd .

How Are Returns Trending?

In terms of Jilin Electric PowerLtd's historical ROCE trend, it doesn't exactly demand attention. The company has employed 121% more capital in the last five years, and the returns on that capital have remained stable at 5.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Jilin Electric PowerLtd's ROCE

In summary, Jilin Electric PowerLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 88% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Jilin Electric PowerLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While Jilin Electric PowerLtd 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.

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