Beijing Shunxin AgricultureLtd (SZSE:000860) Is Finding It Tricky To Allocate Its Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. In light of that, from a first glance at Beijing Shunxin AgricultureLtd (SZSE:000860), we've spotted some signs that it could be struggling, so let's investigate.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Beijing Shunxin AgricultureLtd, this is the formula:

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

0.016 = CN¥137m ÷ (CN¥14b - CN¥5.4b) (Based on the trailing twelve months to March 2024).

So, Beijing Shunxin AgricultureLtd has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 17%.

View our latest analysis for Beijing Shunxin AgricultureLtd

Above you can see how the current ROCE for Beijing Shunxin AgricultureLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Beijing Shunxin AgricultureLtd .

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Beijing Shunxin AgricultureLtd. To be more specific, the ROCE was 13% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Beijing Shunxin AgricultureLtd becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Beijing Shunxin AgricultureLtd is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 49% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Beijing Shunxin AgricultureLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 000860 on our platform quite valuable.

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.