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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Ningbo Joy Intelligent Logistics TechnologyLtd (SZSE:301198) 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)?

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. The formula for this calculation on Ningbo Joy Intelligent Logistics TechnologyLtd is:

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

0.0068 = CN¥6.4m ÷ (CN¥1.3b - CN¥331m) (Based on the trailing twelve months to September 2024).

Thus, Ningbo Joy Intelligent Logistics TechnologyLtd has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Packaging industry average of 5.2%.

Above you can see how the current ROCE for Ningbo Joy Intelligent Logistics TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ningbo Joy Intelligent Logistics TechnologyLtd for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Ningbo Joy Intelligent Logistics TechnologyLtd, we didn't gain much confidence. Around five years ago the returns on capital were 22%, but since then they've fallen to 0.7%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Ningbo Joy Intelligent Logistics TechnologyLtd's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Ningbo Joy Intelligent Logistics TechnologyLtd have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 42% from where it was three years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Ningbo Joy Intelligent Logistics TechnologyLtd does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.