If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd (SHSE:601952) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 Provincial Agricultural Reclamation and DevelopmentLtd, this is the formula:

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

0.084 = CN¥1.0b ÷ (CN¥14b - CN¥2.2b) (Based on the trailing twelve months to June 2024).

So, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has an ROCE of 8.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.6%.

Above you can see how the current ROCE for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd 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 analyst report for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd .

How Are Returns Trending?

The returns on capital haven't changed much for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd in recent years. The company has employed 93% more capital in the last five years, and the returns on that capital have remained stable at 8.4%. 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.

The Bottom Line

Long story short, while Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 42% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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