V V Food & BeverageLtd (SHSE:600300) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in V V Food & BeverageLtd's (SHSE:600300) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for V V Food & BeverageLtd:

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

0.099 = CN¥338m ÷ (CN¥4.5b - CN¥1.1b) (Based on the trailing twelve months to December 2023).

Thus, V V Food & BeverageLtd has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 7.9% generated by the Food industry, it's much better.

Check out 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're interested in investigating V V Food & BeverageLtd's past further, check out this free graph covering V V Food & BeverageLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For V V Food & BeverageLtd Tell Us?

V V Food & BeverageLtd is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 65% whilst employing roughly the same amount of capital. 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 24% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

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

To sum it up, V V Food & BeverageLtd is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 21% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for V V Food & BeverageLtd 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.