Returns At Nanfang Black Sesame GroupLtd (SZSE:000716) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Nanfang Black Sesame GroupLtd (SZSE:000716) so let's look a bit deeper.

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. The formula for this calculation on Nanfang Black Sesame GroupLtd is:

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

0.059 = CN¥181m ÷ (CN¥4.4b - CN¥1.4b) (Based on the trailing twelve months to September 2023).

Therefore, Nanfang Black Sesame GroupLtd has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Food industry average of 7.6%.

View our latest analysis for Nanfang Black Sesame GroupLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Nanfang Black Sesame GroupLtd has performed in the past in other metrics, you can view this free graph of Nanfang Black Sesame GroupLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Nanfang Black Sesame GroupLtd Tell Us?

Nanfang Black Sesame GroupLtd has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 42% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Nanfang Black Sesame GroupLtd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

In summary, we're delighted to see that Nanfang Black Sesame GroupLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 11% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Nanfang Black Sesame GroupLtd we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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.