The Returns At Anji Foodstuff (SHSE:603696) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Anji Foodstuff (SHSE:603696), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Anji Foodstuff, this is the formula:

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

0.053 = CN¥30m ÷ (CN¥601m - CN¥40m) (Based on the trailing twelve months to September 2024).

So, Anji Foodstuff has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.

See our latest analysis for Anji Foodstuff

Historical performance is a great place to start when researching a stock so above you can see the gauge for Anji Foodstuff's ROCE against it's prior returns. If you're interested in investigating Anji Foodstuff's past further, check out this free graph covering Anji Foodstuff's past earnings, revenue and cash flow.

What Can We Tell From Anji Foodstuff's ROCE Trend?

Things have been pretty stable at Anji Foodstuff, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Anji Foodstuff to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Anji Foodstuff has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 8.0% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Anji Foodstuff, we've spotted 3 warning signs, and 2 of them are a bit concerning.

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.