Leshan Giantstar Farming&Husbandry (SHSE:603477) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Leshan Giantstar Farming&Husbandry (SHSE:603477) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Leshan Giantstar Farming&Husbandry:

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%.

See 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're interested, you can view the analysts predictions in our free analyst report for Leshan Giantstar Farming&Husbandry .

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 7.0% five years ago, while capital employed has grown 512%. Usually this isn't ideal, but given Leshan Giantstar Farming&Husbandry conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. 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.

Our Take On Leshan Giantstar Farming&Husbandry's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Leshan Giantstar Farming&Husbandry is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 58% 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.

While Leshan Giantstar Farming&Husbandry 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.