What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Henan Jindan Lactic Acid TechnologyLtd (SZSE:300829) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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 Henan Jindan Lactic Acid TechnologyLtd:

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

0.041 = CN¥106m ÷ (CN¥3.4b - CN¥790m) (Based on the trailing twelve months to June 2024).

So, Henan Jindan Lactic Acid TechnologyLtd has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.5%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Henan Jindan Lactic Acid TechnologyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Henan Jindan Lactic Acid TechnologyLtd.

What Does the ROCE Trend For Henan Jindan Lactic Acid TechnologyLtd Tell Us?

When we looked at the ROCE trend at Henan Jindan Lactic Acid TechnologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 4.1%. However it looks like Henan Jindan Lactic Acid TechnologyLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

In summary, Henan Jindan Lactic Acid TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 64% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Henan Jindan Lactic Acid TechnologyLtd has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Henan Jindan Lactic Acid TechnologyLtd (including 1 which is a bit unpleasant) .

While Henan Jindan Lactic Acid TechnologyLtd 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.