If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Jinhui Holdings (HKG:137) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Jinhui Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0085 = HK$30m ÷ (HK$4.0b - HK$487m) (Based on the trailing twelve months to June 2024).
So, Jinhui Holdings has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 7.1%.
View our latest analysis for Jinhui Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jinhui Holdings' ROCE against it's prior returns. If you're interested in investigating Jinhui Holdings' past further, check out this free graph covering Jinhui Holdings' past earnings, revenue and cash flow.
The Trend Of ROCE
We're delighted to see that Jinhui Holdings is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.8% on its capital. In addition to that, Jinhui Holdings is employing 34% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In Conclusion...
To the delight of most shareholders, Jinhui Holdings has now broken into profitability. Considering the stock has delivered 9.9% 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.
If you'd like to know more about Jinhui Holdings, we've spotted 4 warning signs, and 2 of them don't sit too well with us.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.