Returns On Capital At Qianhe Condiment and Food (SHSE:603027) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So, when we ran our eye over Qianhe Condiment and Food's (SHSE:603027) trend of ROCE, we liked what we saw.

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. The formula for this calculation on Qianhe Condiment and Food is:

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

0.15 = CN¥533m ÷ (CN¥4.2b - CN¥686m) (Based on the trailing twelve months to September 2024).

So, Qianhe Condiment and Food has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 6.8% it's much better.

See our latest analysis for Qianhe Condiment and Food

Above you can see how the current ROCE for Qianhe Condiment and Food compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Qianhe Condiment and Food .

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has employed 110% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Qianhe Condiment and Food has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Qianhe Condiment and Food's ROCE

In the end, Qianhe Condiment and Food has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 24% over the last five years for shareholders who have owned the stock in this period. So to determine if Qianhe Condiment and Food is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Qianhe Condiment and Food could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 603027 on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.