Returns On Capital At Shenzhen Cereals HoldingsLtd (SZSE:000019) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Shenzhen Cereals HoldingsLtd (SZSE:000019), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Shenzhen Cereals HoldingsLtd:

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

0.08 = CN¥404m ÷ (CN¥7.1b - CN¥2.0b) (Based on the trailing twelve months to March 2024).

Thus, Shenzhen Cereals HoldingsLtd has an ROCE of 8.0%. Even though it's in line with the industry average of 7.6%, it's still a low return by itself.

See our latest analysis for Shenzhen Cereals HoldingsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Cereals HoldingsLtd's ROCE against it's prior returns. If you'd like to look at how Shenzhen Cereals HoldingsLtd has performed in the past in other metrics, you can view this free graph of Shenzhen Cereals HoldingsLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

Over the past five years, Shenzhen Cereals HoldingsLtd's ROCE and capital employed have both remained mostly flat. 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 Shenzhen Cereals HoldingsLtd to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Shenzhen Cereals HoldingsLtd 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 16% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing, we've spotted 1 warning sign facing Shenzhen Cereals HoldingsLtd that you might find interesting.

While Shenzhen Cereals HoldingsLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

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