Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Jiangyin Electrical AlloyLtd's (SZSE:300697) trend of ROCE, we liked what we saw.
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. The formula for this calculation on Jiangyin Electrical AlloyLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CN¥146m ÷ (CN¥1.6b - CN¥492m) (Based on the trailing twelve months to March 2024).
Thus, Jiangyin Electrical AlloyLtd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.0% it's much better.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangyin Electrical AlloyLtd's ROCE against it's prior returns. If you're interested in investigating Jiangyin Electrical AlloyLtd's past further, check out this free graph covering Jiangyin Electrical AlloyLtd's past earnings, revenue and cash flow.
So How Is Jiangyin Electrical AlloyLtd's ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 41% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Jiangyin Electrical AlloyLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
In the end, Jiangyin Electrical AlloyLtd has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 35% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.
Jiangyin Electrical AlloyLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com