Jujiang Construction Group (HKG:1459) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Jujiang Construction Group (HKG:1459), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Jujiang Construction Group, this is the formula:

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

0.014 = CN¥25m ÷ (CN¥6.6b - CN¥4.8b) (Based on the trailing twelve months to June 2024).

So, Jujiang Construction Group has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.9%.

See our latest analysis for Jujiang Construction Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Jujiang Construction Group has performed in the past in other metrics, you can view this free graph of Jujiang Construction Group's past earnings, revenue and cash flow.

What Can We Tell From Jujiang Construction Group's ROCE Trend?

In terms of Jujiang Construction Group's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 19%, but since then they've fallen to 1.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a separate but related note, it's important to know that Jujiang Construction Group has a current liabilities to total assets ratio of 73%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Jujiang Construction Group's ROCE

To conclude, we've found that Jujiang Construction Group is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 52% in the last five years. Therefore based on the analysis done in this article, we don't think Jujiang Construction Group has the makings of a multi-bagger.

On a final note, we found 4 warning signs for Jujiang Construction Group (1 makes us a bit uncomfortable) you should be aware of.

While Jujiang Construction Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.