There's Been No Shortage Of Growth Recently For Guangzhou Zhujiang Brewery's (SZSE:002461) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. 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)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.059 = CN¥676m ÷ (CN¥16b - CN¥4.6b) (Based on the trailing twelve months to September 2024).

So, Guangzhou Zhujiang Brewery has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 18%.

See our latest analysis for Guangzhou Zhujiang Brewery

Above you can see how the current ROCE for Guangzhou Zhujiang Brewery 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 Guangzhou Zhujiang Brewery for free.

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 128% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To sum it up, Guangzhou Zhujiang Brewery is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 42% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 002461 on our platform that is definitely worth checking out.

While Guangzhou Zhujiang Brewery 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.