Returns On Capital At Yunnan Shennong Agricultural Industry GroupLTD (SHSE:605296) Paint A Concerning Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Yunnan Shennong Agricultural Industry GroupLTD (SHSE:605296) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Yunnan Shennong Agricultural Industry GroupLTD, this is the formula:

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

0.0015 = CN¥7.0m ÷ (CN¥6.3b - CN¥1.5b) (Based on the trailing twelve months to June 2024).

Thus, Yunnan Shennong Agricultural Industry GroupLTD has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Food industry average of 7.2%.

View our latest analysis for Yunnan Shennong Agricultural Industry GroupLTD

In the above chart we have measured Yunnan Shennong Agricultural Industry GroupLTD's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Yunnan Shennong Agricultural Industry GroupLTD .

So How Is Yunnan Shennong Agricultural Industry GroupLTD's ROCE Trending?

We weren't thrilled with the trend because Yunnan Shennong Agricultural Industry GroupLTD's ROCE has reduced by 99% over the last five years, while the business employed 340% more capital. Usually this isn't ideal, but given Yunnan Shennong Agricultural Industry GroupLTD conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Yunnan Shennong Agricultural Industry GroupLTD probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Yunnan Shennong Agricultural Industry GroupLTD. These trends are starting to be recognized by investors since the stock has delivered a 3.6% gain to shareholders who've held over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

While Yunnan Shennong Agricultural Industry GroupLTD doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 605296 on our platform.

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.