What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So on that note, JD.com (NASDAQ:JD) looks quite promising in regards to its trends of return on capital.
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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. Analysts use this formula to calculate it for JD.com:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.08 = CN¥31b ÷ (CN¥707b – CN¥323b) (Based on the trailing twelve months to June 2025).
Thus, JD.com has an ROCE of 8.0%. Ultimately, that’s a low return and it under-performs the Multiline Retail industry average of 11%.
See our latest analysis for JD.com
In the above chart we have measured JD.com’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for JD.com .
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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.0%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 113%. So we’re very much inspired by what we’re seeing at JD.com thanks to its ability to profitably reinvest capital.
On a side note, JD.com’s current liabilities are still rather high at 46% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we’d like to see this reduce as that would mean fewer obligations bearing risks.
To sum it up, JD.com has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 62% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.