Here's What's Concerning About Leshan Giantstar Farming&Husbandry's (SHSE:603477) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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 Leshan Giantstar Farming&Husbandry (SHSE:603477) 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)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Leshan Giantstar Farming&Husbandry, this is the formula:

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

0.046 = CN¥245m ÷ (CN¥8.5b - CN¥3.2b) (Based on the trailing twelve months to September 2024).

Therefore, Leshan Giantstar Farming&Husbandry has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

Check out our latest analysis for Leshan Giantstar Farming&Husbandry

Above you can see how the current ROCE for Leshan Giantstar Farming&Husbandry 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 Leshan Giantstar Farming&Husbandry .

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't look fantastic because it's fallen from 7.0% five years ago, while the business's capital employed increased by 512%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Leshan Giantstar Farming&Husbandry might not have received a full period of earnings contribution from it.

The Key Takeaway

While returns have fallen for Leshan Giantstar Farming&Husbandry in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 79% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Leshan Giantstar Farming&Husbandry does have some risks though, and we've spotted 1 warning sign for Leshan Giantstar Farming&Husbandry that you might be interested in.

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.