Unpacking JinFu Technology’s (SZSE:003018) Capital Returns: What Investors Should Know

If you’re on the hunt for a stock that could become a multi-bagger, here are a couple of key things to watch. First, look for a healthy and rising return on capital employed (ROCE). Second, check if the company is growing its base of capital. If both indicators are positive, it often points to a solid business model with good opportunities for profit reinvestment. However, when we checked out JinFu Technology (SZSE:003018), we found it doesn’t quite meet all those expectations.

What is Return On Capital Employed (ROCE)?

ROCE helps us understand how much profit a company generates from the money it uses in its operations. The formula is straightforward:

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

Using this formula, we calculated JinFu Technology’s ROCE:

0.094 = CN¥152m ÷ (CN¥1.8b – CN¥186m) (Based on data from the twelve months leading to September 2024).

So, JinFu Technology has an ROCE of 9.4%. While this isn’t very high, it does surpass the average of 5.2% for the Packaging industry.

Past performance offers insights into a company’s potential. This chart shows how JinFu Technology has fared over time. If you’re curious about its past, take a look at the free graph detailing its earnings, revenue, and cash flow.

What the ROCE Trend Tells Us

JinFu Technology’s ROCE trend raises some concerns. About five years ago, the ROCE was 17%. Now, it’s dropped to 9.4%. Although revenues and assets have increased, the drop in ROCE suggests the company might be investing heavily in growth right now. In the long run, if these investments do pay off, shareholders could benefit significantly.

The Bottom Line on JinFu Technology’s ROCE

In summary, while JinFu Technology’s short-term returns appear low, the company is channeling funds for growth, leading to increased sales. However, this hasn’t translated into a significant stock return over the last three years. It’s a good idea to dig deeper into this stock to understand its overall fundamentals.

Every company faces challenges, so it’s wise to know what to watch out for. We’ve identified 2 warning signs for JinFu Technology, with one being particularly concerning.

While JinFu Technology may not shine in returns, consider exploring this free list of companies exhibiting high returns on equity with solid financial standing.