Shareholders Would Enjoy A Repeat Of Cofco Sugar HoldingLTD's (SHSE:600737) Recent Growth In Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Cofco Sugar HoldingLTD (SHSE:600737) looks great, so lets see what the trend can tell us.

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

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. To calculate this metric for Cofco Sugar HoldingLTD, this is the formula:

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

0.23 = CN¥2.8b ÷ (CN¥24b - CN¥12b) (Based on the trailing twelve months to March 2024).

Thus, Cofco Sugar HoldingLTD has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 7.6% earned by companies in a similar industry.

Check out our latest analysis for Cofco Sugar HoldingLTD

In the above chart we have measured Cofco Sugar HoldingLTD's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cofco Sugar HoldingLTD .

So How Is Cofco Sugar HoldingLTD's ROCE Trending?

Investors would be pleased with what's happening at Cofco Sugar HoldingLTD. The data shows that returns on capital have increased substantially over the last five years to 23%. 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 47%. So we're very much inspired by what we're seeing at Cofco Sugar HoldingLTD thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Cofco Sugar HoldingLTD has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Cofco Sugar HoldingLTD's ROCE

All in all, it's terrific to see that Cofco Sugar HoldingLTD is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 7.1% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Cofco Sugar HoldingLTD, we've spotted 2 warning signs, and 1 of them is potentially serious.

Cofco Sugar HoldingLTD is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.