Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Beijing Jingyuntong Technology (SHSE:601908), it didn't seem to tick all of these boxes.
Understanding 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. The formula for this calculation on Beijing Jingyuntong Technology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = CN¥627m ÷ (CN¥24b - CN¥7.1b) (Based on the trailing twelve months to September 2023).
Therefore, Beijing Jingyuntong Technology has an ROCE of 3.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.2%.
View our latest analysis for Beijing Jingyuntong Technology
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Beijing Jingyuntong Technology's past further, check out this free graph of past earnings, revenue and cash flow.
So How Is Beijing Jingyuntong Technology's ROCE Trending?
On the surface, the trend of ROCE at Beijing Jingyuntong Technology doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.8% from 6.7% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line On Beijing Jingyuntong Technology's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Beijing Jingyuntong Technology. These trends are starting to be recognized by investors since the stock has delivered a 39% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
Beijing Jingyuntong Technology could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While Beijing Jingyuntong Technology 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.