Returns On Capital Are Showing Encouraging Signs At JinkoSolar Holding (NYSE:JKS)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in JinkoSolar Holding's (NYSE:JKS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for JinkoSolar Holding:

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

0.091 = CN¥5.2b ÷ (CN¥137b - CN¥80b) (Based on the trailing twelve months to March 2024).

So, JinkoSolar Holding has an ROCE of 9.1%. In absolute terms, that's a low return but it's around the Semiconductor industry average of 9.7%.

Check out our latest analysis for JinkoSolar Holding

roce

Above you can see how the current ROCE for JinkoSolar Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for JinkoSolar Holding .

So How Is JinkoSolar Holding's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 379% more capital is being employed now too. So we're very much inspired by what we're seeing at JinkoSolar Holding thanks to its ability to profitably reinvest capital.

One more thing to note, JinkoSolar Holding has decreased current liabilities to 58% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what JinkoSolar Holding has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 37% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 3 warning signs for JinkoSolar Holding you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.