Returns On Capital At Chongqing Fuling Zhacai Group (SZSE:002507) Paint A Concerning Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Chongqing Fuling Zhacai Group (SZSE:002507), we don't think it's current trends fit the mold of a multi-bagger.

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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 Chongqing Fuling Zhacai Group is:

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

0.11 = CN¥972m ÷ (CN¥9.1b - CN¥442m) (Based on the trailing twelve months to December 2024).

Thus, Chongqing Fuling Zhacai Group has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Food industry.

See our latest analysis for Chongqing Fuling Zhacai Group

Above you can see how the current ROCE for Chongqing Fuling Zhacai Group 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 Chongqing Fuling Zhacai Group .

What Can We Tell From Chongqing Fuling Zhacai Group's ROCE Trend?

On the surface, the trend of ROCE at Chongqing Fuling Zhacai Group doesn't inspire confidence. To be more specific, ROCE has fallen from 23% over the last five years. However it looks like Chongqing Fuling Zhacai Group 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Chongqing Fuling Zhacai Group's ROCE

In summary, Chongqing Fuling Zhacai Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. 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, Chongqing Fuling Zhacai Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Chongqing Fuling Zhacai Group 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.