Returns On Capital Signal Tricky Times Ahead For Sichuan Teway Food GroupLtd (SHSE:603317)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Sichuan Teway Food GroupLtd (SHSE:603317) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Sichuan Teway Food GroupLtd, this is the formula:

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

0.11 = CN¥484m ÷ (CN¥5.4b - CN¥861m) (Based on the trailing twelve months to March 2024).

So, Sichuan Teway Food GroupLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Food industry.

See our latest analysis for Sichuan Teway Food GroupLtd

In the above chart we have measured Sichuan Teway Food GroupLtd'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 Sichuan Teway Food GroupLtd .

What Can We Tell From Sichuan Teway Food GroupLtd's ROCE Trend?

When we looked at the ROCE trend at Sichuan Teway Food GroupLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

While returns have fallen for Sichuan Teway Food GroupLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 41% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a separate note, we've found 1 warning sign for Sichuan Teway Food GroupLtd you'll probably want to know about.

While Sichuan Teway Food GroupLtd 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.