XIANGPIAOPIAO FoodLtd (SHSE:603711) 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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at XIANGPIAOPIAO FoodLtd (SHSE:603711) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. Analysts use this formula to calculate it for XIANGPIAOPIAO FoodLtd:

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

0.068 = CN¥237m ÷ (CN¥4.6b - CN¥1.2b) (Based on the trailing twelve months to March 2024).

Thus, XIANGPIAOPIAO FoodLtd has an ROCE of 6.8%. In absolute terms, that's a low return but it's around the Food industry average of 8.0%.

View our latest analysis for XIANGPIAOPIAO FoodLtd

Above you can see how the current ROCE for XIANGPIAOPIAO FoodLtd 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 XIANGPIAOPIAO FoodLtd .

What Can We Tell From XIANGPIAOPIAO FoodLtd's ROCE Trend?

On the surface, the trend of ROCE at XIANGPIAOPIAO FoodLtd doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 6.8%. 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 Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that XIANGPIAOPIAO FoodLtd is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 34% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Like most companies, XIANGPIAOPIAO FoodLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While XIANGPIAOPIAO FoodLtd 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.