What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Chengdu Jiafaantai Education TechnologyLtd (SZSE:300559), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Chengdu Jiafaantai Education TechnologyLtd, this is the formula:

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

0.041 = CN¥51m ÷ (CN¥1.4b - CN¥171m) (Based on the trailing twelve months to September 2024).

Thus, Chengdu Jiafaantai Education TechnologyLtd has an ROCE of 4.1%. Even though it's in line with the industry average of 4.1%, it's still a low return by itself.

Above you can see how the current ROCE for Chengdu Jiafaantai Education TechnologyLtd 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 Chengdu Jiafaantai Education TechnologyLtd .

The Trend Of ROCE

On the surface, the trend of ROCE at Chengdu Jiafaantai Education TechnologyLtd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.1% from 22% five years ago. However it looks like Chengdu Jiafaantai Education 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 may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Chengdu Jiafaantai Education TechnologyLtd's ROCE

To conclude, we've found that Chengdu Jiafaantai Education TechnologyLtd is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 30% 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 Chengdu Jiafaantai Education TechnologyLtd has the makings of a multi-bagger.

If you want to continue researching Chengdu Jiafaantai Education TechnologyLtd, you might be interested to know about the 4 warning signs that our analysis has discovered.

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.

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.