Xinjiang Tianrun Dairy (SHSE:600419) Is Reinvesting At Lower Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Xinjiang Tianrun Dairy (SHSE:600419) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. The formula for this calculation on Xinjiang Tianrun Dairy is:

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

0.04 = CN¥162m ÷ (CN¥5.8b - CN¥1.8b) (Based on the trailing twelve months to September 2024).

Thus, Xinjiang Tianrun Dairy has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.

See our latest analysis for Xinjiang Tianrun Dairy

Above you can see how the current ROCE for Xinjiang Tianrun Dairy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Xinjiang Tianrun Dairy for free.

So How Is Xinjiang Tianrun Dairy's ROCE Trending?

On the surface, the trend of ROCE at Xinjiang Tianrun Dairy doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like Xinjiang Tianrun Dairy might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Xinjiang Tianrun Dairy is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Xinjiang Tianrun Dairy, we've spotted 4 warning signs, and 1 of them is significant.

While Xinjiang Tianrun Dairy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.