Guangdong Yuehai Feeds GroupLtd (SZSE:001313) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Guangdong Yuehai Feeds GroupLtd (SZSE:001313), we don't think it's current trends fit the mold of a multi-bagger.

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 Guangdong Yuehai Feeds GroupLtd is:

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

0.017 = CN¥49m ÷ (CN¥4.7b - CN¥1.9b) (Based on the trailing twelve months to March 2024).

Thus, Guangdong Yuehai Feeds GroupLtd has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.8%.

View our latest analysis for Guangdong Yuehai Feeds GroupLtd

Above you can see how the current ROCE for Guangdong Yuehai Feeds GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Guangdong Yuehai Feeds GroupLtd .

What Can We Tell From Guangdong Yuehai Feeds GroupLtd's ROCE Trend?

In terms of Guangdong Yuehai Feeds GroupLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 1.7%. However it looks like Guangdong Yuehai Feeds GroupLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Another thing to note, Guangdong Yuehai Feeds GroupLtd has a high ratio of current liabilities to total assets of 41%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

To conclude, we've found that Guangdong Yuehai Feeds GroupLtd is reinvesting in the business, but returns have been falling. Since the stock has declined 23% over the last year, 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.

Like most companies, Guangdong Yuehai Feeds GroupLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

While Guangdong Yuehai Feeds GroupLtd 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.