Some Investors May Be Worried About Sichuan Teway Food GroupLtd's (SHSE:603317) 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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Sichuan Teway Food GroupLtd (SHSE:603317) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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 Sichuan Teway Food GroupLtd is:

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

0.10 = CN¥451m ÷ (CN¥5.3b - CN¥866m) (Based on the trailing twelve months to December 2023).

So, Sichuan Teway Food GroupLtd has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Food industry.

Check out our latest analysis for Sichuan Teway Food GroupLtd

Above you can see how the current ROCE for Sichuan Teway Food GroupLtd 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 Sichuan Teway Food GroupLtd for free.

How Are Returns Trending?

On the surface, the trend of ROCE at Sichuan Teway Food GroupLtd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 10% from 24% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Sichuan Teway Food GroupLtd's ROCE

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. In light of this, the stock has only gained 5.1% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One more thing, we've spotted 1 warning sign facing Sichuan Teway Food GroupLtd that you might find interesting.

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.