Returns At V V Food & BeverageLtd (SHSE:600300) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So on that note, V V Food & BeverageLtd (SHSE:600300) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for V V Food & BeverageLtd, this is the formula:

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

0.10 = CN¥365m ÷ (CN¥4.5b - CN¥975m) (Based on the trailing twelve months to September 2024).

Thus, V V Food & BeverageLtd has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Food industry.

View our latest analysis for V V Food & BeverageLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for V V Food & BeverageLtd's ROCE against it's prior returns. If you'd like to look at how V V Food & BeverageLtd has performed in the past in other metrics, you can view this free graph of V V Food & BeverageLtd's past earnings, revenue and cash flow.

So How Is V V Food & BeverageLtd's ROCE Trending?

V V Food & BeverageLtd has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 456% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

One more thing to note, V V Food & BeverageLtd has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From V V Food & BeverageLtd's ROCE

In summary, we're delighted to see that V V Food & BeverageLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 25% 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.

On a separate note, we've found 2 warning signs for V V Food & BeverageLtd you'll probably want to know about.

While V V Food & BeverageLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.