Guangzhou Zhujiang Brewery (SZSE:002461) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Guangzhou Zhujiang Brewery's (SZSE:002461) returns on capital, so let's have a look.

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 Guangzhou Zhujiang Brewery is:

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

0.056 = CN¥626m ÷ (CN¥15b - CN¥4.0b) (Based on the trailing twelve months to June 2024).

So, Guangzhou Zhujiang Brewery has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Beverage industry average of 17%.

Check out our latest analysis for Guangzhou Zhujiang Brewery

In the above chart we have measured Guangzhou Zhujiang Brewery'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 Guangzhou Zhujiang Brewery .

What The Trend Of ROCE Can Tell Us

Guangzhou Zhujiang Brewery's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 286% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Guangzhou Zhujiang Brewery's ROCE

To bring it all together, Guangzhou Zhujiang Brewery has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 43% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Guangzhou Zhujiang Brewery can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 002461 that compares the share price and estimated value.

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.