Here's What's Concerning About Jin Medical International's (NASDAQ:ZJYL) 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. 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. However, after investigating Jin Medical International (NASDAQ:ZJYL), we don't think it's current trends fit the mold of a multi-bagger.

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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. To calculate this metric for Jin Medical International, this is the formula:

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

0.13 = US$3.6m ÷ (US$46m - US$17m) (Based on the trailing twelve months to September 2024).

So, Jin Medical International has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Medical Equipment industry.

View our latest analysis for Jin Medical International

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

What Does the ROCE Trend For Jin Medical International Tell Us?

When we looked at the ROCE trend at Jin Medical International, we didn't gain much confidence. Around five years ago the returns on capital were 41%, but since then they've fallen to 13%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Jin Medical International is reinvesting for growth and has higher sales as a result. But since the stock has dived 76% in the last year, there could be other drivers that are influencing the business' outlook. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.

One more thing, we've spotted 2 warning signs facing Jin Medical International that you might find interesting.

While Jin Medical International 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.