The Returns On Capital At Chongqing Fuling Zhacai Group (SZSE:002507) Don't Inspire Confidence

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Chongqing Fuling Zhacai Group (SZSE:002507) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Chongqing Fuling Zhacai Group:

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

0.095 = CN¥824m ÷ (CN¥9.1b - CN¥442m) (Based on the trailing twelve months to September 2024).

Thus, Chongqing Fuling Zhacai Group has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Food industry average of 6.8%.

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Chongqing Fuling Zhacai Group .

The Trend Of ROCE

When we looked at the ROCE trend at Chongqing Fuling Zhacai Group, we didn't gain much confidence. To be more specific, ROCE has fallen from 25% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From 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 investors appear hesitant that the trends will pick up because the stock has fallen 20% in the last five years. 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.

One more thing, we've spotted 1 warning sign facing Chongqing Fuling Zhacai Group that you might find interesting.

While Chongqing Fuling Zhacai Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.