If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Although, when we looked at Jin Medical International (NASDAQ:ZJYL), it didn't seem to tick all of these boxes.
This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.
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. The formula for this calculation on Jin Medical International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) (Total Assets - Current Liabilities)
0.07 = US$2.0m (US$49m - US$21m) (Based on the trailing twelve months to March 2025).
So, Jin Medical International has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 10%.
See 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're interested in investigating Jin Medical International's past further, check out this free graph covering Jin Medical International's past earnings, revenue and cash flow.
What Does the ROCE Trend For Jin Medical International Tell Us?
On the surface, the trend of ROCE at Jin Medical International doesn't inspire confidence. To be more specific, ROCE has fallen from 28% over the last five years. 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.
Another thing to note, Jin Medical International has a high ratio of current liabilities to total assets of 43%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Key Takeaway
While returns have fallen for Jin Medical International in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. 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.
On a final note, we found 3 warning signs for Jin Medical International (1 doesn't sit too well with us) you should be aware of.
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.
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.