There's Been No Shortage Of Growth Recently For Jiang Su Yida ChemicalLtd's (SZSE:300721) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Jiang Su Yida ChemicalLtd's (SZSE:300721) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Jiang Su Yida ChemicalLtd:

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

0.046 = CN¥59m ÷ (CN¥2.6b - CN¥1.3b) (Based on the trailing twelve months to June 2024).

Thus, Jiang Su Yida ChemicalLtd has an ROCE of 4.6%. Even though it's in line with the industry average of 5.5%, it's still a low return by itself.

Check out our latest analysis for Jiang Su Yida ChemicalLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiang Su Yida ChemicalLtd's ROCE against it's prior returns. If you're interested in investigating Jiang Su Yida ChemicalLtd's past further, check out this free graph covering Jiang Su Yida ChemicalLtd's past earnings, revenue and cash flow.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.6%. The amount of capital employed has increased too, by 34%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 49% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

All in all, it's terrific to see that Jiang Su Yida ChemicalLtd is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 23% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 3 warning signs for Jiang Su Yida ChemicalLtd (1 doesn't sit too well with us) you should be aware of.

While Jiang Su Yida ChemicalLtd 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.