Yuan Long Ping High-Tech Agriculture (SZSE:000998) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Yuan Long Ping High-Tech Agriculture (SZSE:000998), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Yuan Long Ping High-Tech Agriculture is:

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

0.048 = CN¥678m ÷ (CN¥26b - CN¥12b) (Based on the trailing twelve months to September 2024).

So, Yuan Long Ping High-Tech Agriculture has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

Check out our latest analysis for Yuan Long Ping High-Tech Agriculture

In the above chart we have measured Yuan Long Ping High-Tech Agriculture'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 Yuan Long Ping High-Tech Agriculture .

The Trend Of ROCE

In terms of Yuan Long Ping High-Tech Agriculture's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 4.8% and the business has deployed 38% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 46% of total assets, this reported ROCE would probably be less than4.8% because total capital employed would be higher.The 4.8% ROCE could be even lower if current liabilities weren't 46% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

The Bottom Line On Yuan Long Ping High-Tech Agriculture's ROCE

In conclusion, Yuan Long Ping High-Tech Agriculture has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 39% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Yuan Long Ping High-Tech Agriculture, we've spotted 2 warning signs, and 1 of them is a bit concerning.

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.