If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Jiangyin Jianghua Microelectronics Materials (SHSE:603078) 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Jiangyin Jianghua Microelectronics Materials:

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

0.035 = CN¥78m ÷ (CN¥2.8b - CN¥581m) (Based on the trailing twelve months to March 2024).

So, Jiangyin Jianghua Microelectronics Materials has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.7%.

In the above chart we have measured Jiangyin Jianghua Microelectronics Materials' 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 Jiangyin Jianghua Microelectronics Materials .

So How Is Jiangyin Jianghua Microelectronics Materials' ROCE Trending?

The returns on capital haven't changed much for Jiangyin Jianghua Microelectronics Materials in recent years. The company has consistently earned 3.5% for the last five years, and the capital employed within the business has risen 150% in that time. 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.

What We Can Learn From Jiangyin Jianghua Microelectronics Materials' ROCE

In conclusion, Jiangyin Jianghua Microelectronics Materials has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 96% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 1 warning sign for Jiangyin Jianghua Microelectronics Materials that we think you should be aware of.

While Jiangyin Jianghua Microelectronics Materials 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.