If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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 Zhejiang Jiaxin SilkLtd (SZSE:002404) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Zhejiang Jiaxin SilkLtd, this is the formula:

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

0.084 = CN¥177m ÷ (CN¥3.3b - CN¥1.2b) (Based on the trailing twelve months to September 2024).

So, Zhejiang Jiaxin SilkLtd has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 6.5% generated by the Luxury industry, it's much better.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zhejiang Jiaxin SilkLtd's ROCE against it's prior returns. If you'd like to look at how Zhejiang Jiaxin SilkLtd has performed in the past in other metrics, you can view this free graph of Zhejiang Jiaxin SilkLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

Over the past five years, Zhejiang Jiaxin SilkLtd's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Zhejiang Jiaxin SilkLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

We can conclude that in regards to Zhejiang Jiaxin SilkLtd's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 14% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Zhejiang Jiaxin SilkLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 002404 on our platform quite valuable.

While Zhejiang Jiaxin SilkLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.