There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we’re seeing at Jason Furniture (Hangzhou)Ltd’s () look very promising so lets take a look.
Understanding 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 Jason Furniture (Hangzhou)Ltd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.20 = CN¥2.2b ÷ (CN¥16b – CN¥5.2b) (Based on the trailing twelve months to March 2024).
Therefore, Jason Furniture (Hangzhou)Ltd has an ROCE of 20%. That’s a fantastic return and not only that, it outpaces the average of 8.4% earned by companies in a similar industry.
In the above chart we have measured Jason Furniture (Hangzhou)Ltd’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can for free.
What The Trend Of ROCE Can Tell Us
The trends we’ve noticed at Jason Furniture (Hangzhou)Ltd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 45%. So we’re very much inspired by what we’re seeing at Jason Furniture (Hangzhou)Ltd thanks to its ability to profitably reinvest capital.
Our Take On Jason Furniture (Hangzhou)Ltd’s ROCE
In summary, it’s great to see that Jason Furniture (Hangzhou)Ltd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 72% return over the last five years. In light of that, we think it’s worth looking further into this stock because if Jason Furniture (Hangzhou)Ltd can keep these trends up, it could have a bright future ahead.
If you’d like to know more about Jason Furniture (Hangzhou)Ltd, we’ve spotted and 1 of them shouldn’t be ignored.
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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.