Some Investors May Be Worried About Shandong Yisheng Livestock & Poultry Breeding's (SZSE:002458) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. However, after briefly looking over the numbers, we don't think Shandong Yisheng Livestock & Poultry Breeding (SZSE:002458) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Shandong Yisheng Livestock & Poultry Breeding is:

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

0.14 = CN¥666m ÷ (CN¥6.6b - CN¥1.7b) (Based on the trailing twelve months to December 2023).

Therefore, Shandong Yisheng Livestock & Poultry Breeding has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Food industry.

See our latest analysis for Shandong Yisheng Livestock & Poultry Breeding

Above you can see how the current ROCE for Shandong Yisheng Livestock & Poultry Breeding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shandong Yisheng Livestock & Poultry Breeding for free.

The Trend Of ROCE

The trend of ROCE doesn't look fantastic because it's fallen from 24% five years ago, while the business's capital employed increased by 189%. Usually this isn't ideal, but given Shandong Yisheng Livestock & Poultry Breeding conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Shandong Yisheng Livestock & Poultry Breeding might not have received a full period of earnings contribution from it.

Our Take On Shandong Yisheng Livestock & Poultry Breeding's ROCE

While returns have fallen for Shandong Yisheng Livestock & Poultry Breeding in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 21% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we've found 2 warning signs for Shandong Yisheng Livestock & Poultry Breeding that we think you should be aware of.

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.