If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Analysts use this formula to calculate it for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd:

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

0.076 = CN¥905m ÷ (CN¥14b - CN¥2.5b) (Based on the trailing twelve months to September 2024).

So, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd has an ROCE of 7.6%. On its own, that's a low figure but it's around the 6.8% average generated by the Food industry.

In the above chart we have measured Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's prior ROCE against its prior performance, but the future is arguably more important. 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 .

What Does the ROCE Trend For Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd Tell Us?

There are better returns on capital out there than what we're seeing at Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd. The company has employed 90% more capital in the last five years, and the returns on that capital have remained stable at 7.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's ROCE

As we've seen above, Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 72% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd does have some risks though, and we've spotted 1 warning sign for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd that you might be interested in.

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.

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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.